{"id":18333,"date":"2019-06-08T00:25:10","date_gmt":"2019-06-08T00:25:10","guid":{"rendered":"http:\/\/thepatientinvestor.com\/?p=18333"},"modified":"2019-06-08T00:25:10","modified_gmt":"2019-06-08T00:25:10","slug":"sp-500-short-term-versus-long-run","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2019\/06\/08\/sp-500-short-term-versus-long-run\/","title":{"rendered":"S&P 500: Short-term versus long run"},"content":{"rendered":"

The market is excited at the prospect of Fed rate cuts (in response to the US-CCP trade war), with the S&P 500 headed for another test of its earlier high at 2950. A Trend Index trough above zero indicates short-term buying pressure.<\/p>\n

\"S&P<\/p>\n

Falling bond yields, however, warn of a flight to safety. 10-Year Treasury yields have fallen close to 120 basis points (bps) since late 2018, as investors shift from equities to bonds. Prices are being supported by stock buybacks rather than investor inflows.<\/p>\n

\"10-year<\/p>\n

The Yield Differential between 10-year (purple) and 3-month (lime) Treasury yields is now negative, a reliable early<\/strong> warning of recession.<\/p>\n

\"Yield<\/p>\n

Corporate bond spreads, the difference between lowest investment grade (Baa) and Treasury yields, are rising. An indicator of credit risk, a spread above 2.5% (amber) is an early warning of trouble ahead, while 3.0% (red) signals that risk is elevated.<\/p>\n

\"10-Year<\/p>\n

Falling employment growth is another important warning. Annual employment growth below 1.0% (amber) would normally cause the Fed to cut interest rates. In the current scenario, that is almost certain.<\/p>\n

\"Employment<\/p>\n

What is holding the Fed back is average hourly wages. Annual growth above 3.0% is indicative of a tight labor market and warns against cutting rates too hastily.<\/p>\n

\"Average<\/p>\n

Stats for Q1 2019 warn that compensation is rising as a percentage of net value added, while profits are falling. As can be seen from the previous two recessions (gray bars), rising compensation (as % of NVA) normally leads to falling profits and a recession. Cutting interest rates would accelerate this.<\/p>\n

\"Profits<\/p>\n

Annual GDP growth came in at 3.2% (after inflation) for the first quarter, but growth in hours worked is slowing. GDP growth is likely to follow.<\/p>\n

\"Real<\/p>\n

Personal consumption expenditure for Q1 was largely positive, with an uptick in services and non-durable goods. But consumption of durable goods fell sharply, warning that consumer confidence in the medium-to-long-term is declining.<\/p>\n

\"Consumption\"<\/p>\n

On the global stage, commodity prices are falling, indicating an anticipated drop in demand, especially from China.<\/p>\n

\"DJ-UBS<\/p>\n

Nymex crude is following, and expected to test support between $40 and $45 per barrel.<\/p>\n

\"Crude<\/p>\n

Short-term prospects may appear reasonable, but the long-term outlook is decidedly negative.<\/p>\n

In the short run, the market is a voting machine but in the long run, it is a weighing machine.<\/p>\n

~ Benjamin Graham<\/p><\/blockquote>\n","protected":false},"excerpt":{"rendered":"

The market is excited at the prospect of Fed rate cuts (in response to the US-CCP trade war), with the S&P 500 headed for another test of its earlier high at 2950. A Trend Index trough above zero indicates short-term buying pressure. Falling bond yields, however, warn of a flight to safety. 10-Year Treasury yields … <\/p>\n

Continue reading “S&P 500: Short-term versus long run”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mo_disable_npp":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[31,46,3761,13,57,34],"tags":[69,3768,824,1064,1229,2527,2645,3010,3726],"class_list":["post-18333","post","type-post","status-publish","format-standard","hentry","category-the-fed-banks-interest-rates","category-deficit-spending-employment","category-gdp-and-activity","category-inflation-economy","category-stock-markets","category-us-canada-countries-regions","tag-10-year-treasury-yield","tag-average-hourly-wage-rates","tag-corporate-bond-spreads","tag-dj-ubs-commodity-index","tag-employment-growth","tag-nymex-light-crude","tag-personal-consumption","tag-sp-500","tag-yield-differential"],"yoast_head":"\nS&P 500: Short-term versus long run - the patient investor<\/title>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"S&P 500: Short-term versus long run - the patient investor\" \/>\n<meta property=\"og:description\" content=\"The market is excited at the prospect of Fed rate cuts (in response to the US-CCP trade war), with the S&P 500 headed for another test of its earlier high at 2950. 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He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters. Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis. Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008\/2009 and 2020 bear markets well ahead of actual events. He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.","sameAs":["https:\/\/facebook.com\/people\/The-Patient-Investor\/61572934660810\/","https:\/\/www.instagram.com\/colin_thepatientinvestor","https:\/\/au.linkedin.com\/in\/colintwiggs"],"url":"https:\/\/thepatientinvestor.com\/index.php\/author\/investor\/"}]}},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p9tQ4n-4LH","jetpack_likes_enabled":false,"jetpack-related-posts":[{"id":17081,"url":"https:\/\/thepatientinvestor.com\/index.php\/2018\/09\/22\/how-will-a-bond-bear-market-affect-stocks\/","url_meta":{"origin":18333,"position":0},"title":"How will a bond bear market affect stocks?","author":"Colin Twiggs","date":"September 22, 2018","format":false,"excerpt":"10-Year Treasury yields broke out of their triangular consolidation at 3.00%, while the Trend Index recovered above zero signaling a fresh advance. Importance of resistance at 3.00% is best illustrated on a long-term monthly chart. Yields declined for more than three decades (since 1981) in a bond bull market but\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":17120,"url":"https:\/\/thepatientinvestor.com\/index.php\/2018\/10\/04\/treasury-yields-confirm-bond-bear-market\/","url_meta":{"origin":18333,"position":1},"title":"Treasury yields confirm bond bear market","author":"Colin Twiggs","date":"October 4, 2018","format":false,"excerpt":"10-Year Treasury yields respected their new support level at 3.00%, confirming a primary advance. Breakout above 3.00% also completes a double-bottom reversal, signaling the end of a three-decade-long secular bull market in bonds. The yield differential between 10-year and 3-month Treasuries is declining but a flat yield curve does not\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":14843,"url":"https:\/\/thepatientinvestor.com\/index.php\/2017\/02\/18\/bond-spreads-bullish-for-us-less-so-australia\/","url_meta":{"origin":18333,"position":2},"title":"Bond spreads bullish for US, less so Australia","author":"ColinTwiggs","date":"February 18, 2017","format":false,"excerpt":"Yield Curve The yield curve is one of the best predictors of US economic recessions. Every time the yield curve has turned negative in the last fifty years, a recession has followed. First of all, what is a yield curve? It is the plot of yields on bonds, normally Treasuries,\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":18037,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/03\/23\/sp-500-treasuries-warn-of-a-bear-market\/","url_meta":{"origin":18333,"position":3},"title":"S&P 500: Treasuries warn of a bear market","author":"Colin Twiggs","date":"March 23, 2019","format":false,"excerpt":"10-Year Treasury yields plunged Friday, to close at 2.45%, warning of a decline to test primary support at 2.0%. The yield curve is now likely to turn negative. The 10-Year\/2-Year yield differential has already fallen to 0.13%. Below zero signals a negative yield curve, a reliable predictor of oncoming recession\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":15621,"url":"https:\/\/thepatientinvestor.com\/index.php\/2017\/07\/21\/vix-hits-record-low\/","url_meta":{"origin":18333,"position":4},"title":"VIX hits record low","author":"ColinTwiggs","date":"July 21, 2017","format":false,"excerpt":"The CBOE Volatility Index (VIX) made a new low of 9.30 indicating record low levels of stock volatility. High levels of stock buybacks and large ETF fund inflows may both have contributed, but this is only the third time in its 27-year history that index has broken below 10%. The\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":18301,"url":"https:\/\/thepatientinvestor.com\/index.php\/2019\/06\/01\/trade-war-reality-sinks-in\/","url_meta":{"origin":18333,"position":5},"title":"Trade war reality sinks in","author":"Colin Twiggs","date":"June 1, 2019","format":false,"excerpt":"Realization that we are slipping into a trade war is starting to sink in. The S&P 500 broke medium-term support at 2800, warning of a correction. The target is primary support at 2400. Volatility is flashing an amber warning, above 1.0%. Nymex crude is plunging as anticipated global demand falls.\u2026","rel":"","context":"In "Banks & Interest Rates"","block_context":{"text":"Banks & Interest Rates","link":"https:\/\/thepatientinvestor.com\/index.php\/category\/economy\/the-fed-banks-interest-rates\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]}],"_links":{"self":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18333","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/comments?post=18333"}],"version-history":[{"count":1,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18333\/revisions"}],"predecessor-version":[{"id":18334,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/posts\/18333\/revisions\/18334"}],"wp:attachment":[{"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/media?parent=18333"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/categories?post=18333"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thepatientinvestor.com\/index.php\/wp-json\/wp\/v2\/tags?post=18333"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}