This is the video recording of our April 5th Monthly Charts Live Strategy Session

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley  

It finally happened…

The yield curve inverted for a brief moment as the 2-year yield rose above the 10-year earlier this week. 

But whether or not it inverted yet is beside the point. It’s been flattening for a long time, and that’s the direction we’re headed in. It's only a matter of time.

While media outlets and fearmongers will spin this development as an urgent warning of an impending bear market, here's what you need to know: Throughout history, equities have done well during and after inversions.

This commonly observed leading indicator has a tendency to precede major market tops by years, not months. In other words, there's still time. The average lead time is about 18 months after prior inversions. 

More importantly, when it comes to forecasting bear markets and recessions, many experts will argue that it is actually not the 2-year we should be focused on, but the 3-month yield. 

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley  

It's beginning to feel more and more like a risk-on environment out there.

Commodities are ripping higher. Stocks are digging in at critical levels. And defensive assets such as Treasury bonds and the Japanese yen are in freefall.

Despite the market volatility this year, investors continue to be rewarded for buying stocks over bonds. This has been the case for two years now, and there's no evidence it will change anytime soon.

When we look to our risk indicators and risk appetite ratios, the majority are still stuck in a range. With the stocks versus bonds ratio resolving to fresh highs, we're thinking the rest may soon follow.

But first and foremost, the price action from this classic intermarket relationship suggests that stocks are still the place to be.

Let’s take a look.

Here’s a chart of the S&P 500 $SPY versus US T-Bond ETF $TLT:   

Monday night we held our March Monthly Conference Call, which Premium Members can access and re-watch here.

In this post, we’ll summarize it by highlighting five of the most important charts and/or themes we covered, along with commentary on each.

Let’s get right into it!

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley  

Benchmark rates around the world have been rolling over as uncertainty sweeps across markets.

Despite the growing pessimism among investors, global yields are digging in at critical levels and bouncing higher in recent sessions. 

We discussed how international yields – particularly those in developed Europe – confirmed the new highs in US rates earlier in the year. 

Today, we’re going to check in on some of those same yields and see if this is still a piece of confirming evidence for rates here in the US.

With the US 10-year hovering around its breakout level at last year’s highs we’re looking for any clues we can get for whether or not these new highs are here to stay.

If the new highs in global yields are holding, that would go a long way in supporting the upside resolution in the US 10-Year.

On the other hand, if we start to see more and more yields around the world fail and roll over, the US will likely follow.

Let’s start with the US 10-year yield:

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley

We could sit back and speculate on what measures the Federal Reserve is likely to take to curb inflation. But it wouldn't change the fact that inflation is already here.

We’d rather focus on what market participants are doing now to position their portfolios for these inflationary pressures.

Since last year, inflation has gripped markets, and we don’t foresee it going away anytime soon. We think the best course of action is to get used to this environment and focus on assets that tend to perform well during periods of inflation.

One of our favorite ways to measure inflation expectations is by analyzing Treasury Inflation-Protected Securities (TIPS) versus Treasuries.

Relative strength from TIPS implies that investors are positioning themselves for a general increase in the prices of goods and services. That’s exactly what we’re seeing today.

Let’s take a look and discuss what we want to do about it.

Here’s an overlay chart of the $TIP/$IEF ratio and the US five-year breakeven inflation rate:

This is the video recording of our March 1st Monthly Charts Live Strategy Session

US Treasuries are off to their worst start in more than a decade as rates rise across the curve. 

The US Aggregate Bond ETF $AGG is down more than 4% year to date. Treasuries can’t manage to catch a bid. And High-Yield Bonds $HYG have fallen off a cliff.

But this could all change quickly. Especially if stocks continue to sell off. 

Money has to go somewhere as it flows out of equities. And with many bonds testing critical levels, it would make sense to see prices mean revert, at least in the near term.

Let’s take a trip around the bond market and discuss some of the key levels on our radar.

First up is the long duration Treasury Bond ETF $TLT:

After dropping 5.4% in the last three months, TLT has paused at a logical area of former support around 135. This the same level price rebounded from late 2019 and early 2021.

This is the video recording of the February 2022 Mid-month Conference Call.