It’s the dreaded “inverted Treasury yields” and Chicken Littles in the financial industry are all of a sudden issuing dire warnings of a coming recession.
What in God’s name is an “inverted Treasury yield”?
Yields on two-year and 10-year Treasury notes inverted early Wednesday, a market phenomenon that shows investors want more in return for short-term government bonds than they are for long-term bonds.
It’s the first time that has happened since the Great Recession and it can be an indication that investors have lost faith in the soundness of the U.S. economy.
Yeah, what he said. I wouldn’t know an inverted Treasury yield from a kangaroo — which makes me economically smarter than just about every liberal in the country. But I know crapola when I hear it.
After a big sell-off by the amateurs — allowing the pros to make an absolute killing in the market — stocks are stabilizing because ordinary people are still spending like mad.
The Dow Jones Industrial Average rose 38 points, or 0.2%, stabilizing a day after sliding 800 points–its biggest decline this year. The S&P 500 added 0.4%, and the Nasdaq Composite rose 0.1%.
U.S. shoppers increased their spending in July, the Commerce Department said Thursday, with retail sales, a measure of purchases at stores, restaurants and online, climbing a seasonally adjusted 0.7% from a month earlier.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, has remained a pillar of domestic growth, supported by low unemployment and rising incomes.
Recessions are as much about perception as they are about the numbers. If analysts were trying to start a panic with their “inverted Treasury yields,” they’re going to have to do better than that. Americans are apparently ignoring them as well, as they continue to spend and spend.
Walmart (WMT), a Dow stock and bellwether of consumer spending, said Thursday sales at its jumbo-size US stores increased 2.8% during its most recent quarter compared with the same period a year ago. Walmart raised its guidance for the remainder of the year, signaling optimism about the strength of its business.
“Our customers’ economic health remains solid and our competitive position is strong,” Walmart CFO Brett Biggs said in prepared comments Thursday.
Shares of Walmart were up about 5%.
Strong retail sales, low unemployment, low interest rates, low inflation — what’s not to like? If you’re a Democrat, the news of an impending recession couldn’t be better — even if it’s only wishful thinking.
Some analysts aren’t falling for it:
Despite the recent bout of volatility, some analysts and investors still see room for stocks to move higher from here.
“We’re still far away from slipping into a recession that could cause the consumer to retract spending and accelerate a path of economic slowing,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. “Inflation isn’t problematic, interest rates are low and earnings are growing at a moderate pace, so the backdrop is still favorable for stocks to trend higher.”
There are some worrying signs. The tariffs are really affecting agriculture and manufacturing is down. But as long as Americans keep spending and the Fed keeps interest rates low, the economy should still be growing by the time November 2020 rolls around.
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