Lindsey Report June 2018

The volatility in the U.S. equity markets continued in May; however, all three (S&P 500, Dow and Nasdaq) posted gains for the month: the S&P 500 added more than 2% (AP). However, of course there is a however these days, concerns about trade tariffs resurfaced late in the month, as did worries about Italy’s inability to form a government.

Italy is the 3rd largest economy in the EU and the 8th largest in the world (Statistics Times). Fears over new elections sent Italian stocks and bonds tumbling on, 5/29, triggering a sell-off in global markets (CNN). You may recall that in the spring/summer of ’10 and ’11 the Greek Debt Crisis was at the center of global equity selloffs. For perspective, Greece’s economy is not in the top 50 economies in the world, so Italian woes could be a problem (Statistics Times).

In additional to equities falling on the 29th, the yield on the U.S. 10-Year Treasury note dropped more than 4%. After hovering above 3% much of May, the yield fell to 2.77% (WSJ).

Regarding the yield on the 10-year, it has been in the news a lot this year, as it was approaching and then surpassed the 3% level for the first time in many years. Why might the 10-year be important? Well, many view the 10-year note as a proxy for longer-term growth and inflation expectations, and therefore, a signal for where the U.S. economy is headed. If so, a higher yield is a positive, economic sign (WP).

In addition, it is the benchmark that guides other interest rates, it is watched by the Federal Reserve before they make policy rate decisions, and, not to be outdone, it is the most popular debt instrument in the world (the balance). Yes, it’s important.

Still, I find all the noise about the 3% level a touch ironic, as this level is historically low. How low? Well, prior to 2008, the last time rates were below 3%, Elvis was gyrating his hips for Ed Sullivan (multpl). And during the economic expansions of the 80’s and 90’s, rates ranged from 4.5% to 13% (macrotrends). So, let’s hope we can handle this 3% mountain

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual. To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. The economic forecasts set forth in this commentary may not develop as predicted and there can be no guarantees that strategies promoted will be successful.

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