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By Nicholas
Jasinski | Monday, March 28 Trouble
With the Curve. Stocks
rose, oil prices fell, and bond yields continued to climb today. The S&P
500 added 0.7%, the Dow Jones Industrial Average ticked
up 0.3%, and the Nasdaq Composite gained 1.3%. Consumer discretionary sector shares were
the best performers in the S&P 500, up 2.7%, followed by other
growth-oriented groups like technology. A nearly 7% drop in the price of oil,
to about $106 a barrel, dragged down energy shares in the index by 2.5%. A decent chunk of today's consumer discretionary rise came thanks
to an 8% jump in Tesla stock. The electric vehicle maker said that it
would seek authorization from shareholders at its next annual meeting to split
its stock, for the second time in as many years. That doesn't
change the fundamentals or total value of the company, but the market has
been rewarding stock splits lately, and today was no exception. Bond markets around the world continued to
drift lower today, Barron's Alexandra
Scaggs reported.
When the price of a bond declines, its yield rises. While bond prices have fallen across
maturities, the move higher in yields lately has been stronger in short-term
bonds than long-term ones. The result has been a flatter Treasury yield
curve, or the graph plotting yields for bonds of different maturities.
In fact, certain parts of the yield curve have recently inverted, meaning
that shorter-term yields exceed longer-term ones. That has been a traditional hallmark of
recessions in the past. Alex has the details: On Monday morning, 5-year Treasuries briefly
paid higher yields than 30-year bonds. A little after 3 a.m., for example,
the 5-year note yielded 2.64% and the 30-year bond yielded 2.57%. It was the
first time that has happened since 2006. Any time a short-dated Treasury pays higher
yields than a longer-dated bond—known as a curve inversion—it raises
eyebrows. That is because investors usually demand more yield to tie up money
for longer periods of time, to compensate for the risk of unexpected
inflation or Fed rate increases, so curve inversions are sometimes a signal
of recession. At the most basic level, the inversion shows
that investors expect a peak in Fed tightening and inflation (both of which
are linked to economic growth) sometime between the next 5 and 30
years. A lot can and will happen between 5 and 30
years from now. The more usefully predictive part of the curve that investors
and economists tend to watch is the difference between the 2- and 10-year
yields, or 3-month and 10-year yields. Those gaps stood at 0.14 and 1.9
percentage points, respectively, as of this afternoon. Neither have inverted
since 2019, right before the pandemic-induced 2020 recession. Wall Street remains on a nervous yield
curve-inversion watch. Read more from Alex here. |
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DJIA: +0.27% to 34,955.89 The Hot Stock: Tesla +8.0% Best Sector: Consumer
Discretionary +2.7% |
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