Volatility continued in US Equity Markets last week, as the US yield curve inverted for the first time in over a decade, stoking fears of a pending economic recession. As a reminder, a yield curve inversion occurs when the yield on the US 2-Year Treasury is higher than the yield on the US 10-Year Treasury. Every recession over the past 50 years has been preceded by a yield curve inversion, though every yield curve inversion has not led to recession. No matter, the occurrence caused markets to seesaw notably last week, though the S&P 500 finished the week only down 1.0%, bringing its gains for the year down to 15.2%. The S&P 500 is now only down about 4.6% from its all-time highs despite the recent volatility. The Nasdaq dropped 0.8% for the week and is now up 19.0% for the year, while the Russell 2000 (small-cap stocks) fell 1.3% for the week and is now up 10.8% for the year.
Global equity markets were weak amid the increasing economic concerns, further fueled by the US yield curve inversion. Developed Markets fell 1.6% for the week to bring its gains for the year down to 6.2%. Emerging Markets declined 1.1% for the week and are now only fractionally higher for the year, up 0.5%.
US interest rates dropped notably last week, with the yield on the US 10-Year Treasury falling to 1.56% vs. 1.75% the prior week. The yield curve inversion did not even last a full day, and the yield on US 2-Year Treasuries closed the week at 1.49%, bringing the spread between 2-Year and 10-Year Treasuries to a positive 0.07%. Note that the historic low for the 10-Year yield was 1.36% following the Brexit vote in July 2016.
Of Interest to Us
Amid the increase in market volatility, data came out showing that the US economy remains strong, as Retail Sales for July came in much stronger than expected, up 0.7%. Measures for US manufacturing for August also were notably better than forecasts, and the NFIB Small Business Optimism Index for July rose from June. While economic data can turn quickly, is the fear in the marketplace once again greater than the underlying economic reality?
for the week ending 8/16/2019
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