Article Category: Interest Rates

The financial markets have been telling a fragmented story ever since the beginning of 2019, but that appears to be changing. Over the past month, the messages coming from stock and bond markets have begun to coalesce in a manner that unfortunately, will likely leave a bearish taste in your mouth.

Earnings season officially kicks off this week, so let’s begin with a quick look at how expectations have evolved, and what it could mean for stock prices moving forward. The first thing to note is that S&P 500 earnings are expected to decline for the first time since Q2 of 2016.

There have been quite a few interesting developments over this past week, so we have a lot to cover. I want to begin by drawing your attention to the divergence between stock prices and bond yields. We discussed this back on March 5th, but since then, things have deteriorated even further.

We’ve been hyper-focused on the equity market over the past few months so I thought we’d expand our horizons today and look at a few other markets, particularly the bond market. This discussion should dovetail nicely with recent central bank comments suggesting an alteration of their inflation policy framework – something that could have large consequences down road.

Most investors, including myself, generally sit squarely within one of two camps: bullish or bearish. My research and observations over the years have left me with a rather simple premise on which to base this judgement. When the economy is expanding, remain firmly bullish, and when growth begins to slow and recession clouds gather, get bearish.