Huge Washout for S&P500
I don't have time to put out the charts. You can see from all my posts, that I've been bearish since March 2018. It was about 10% from January's peak that I called a big correction.
On average, when it happens on monthly charts, the correction is over 20%, which means a technical bear is triggered.
The S&P500 is down around 16%, MSCI Europe down 20%, MSCI Emerging Markets down 28%, Asia ex Japan MSCI down 25%. I still don't think the end is over. I believe there will be at least another 5% downside for S&P500, triggering the worst over bear market since 2011.
Meanwhile, the US 3 year Treasury Yield > 5 years. In a way, the yield curve has inverted, although it is not the traditional 10 - 2. Nevertheless it means a slowdown of the US economy is underway. It may not be a recession in the sense of 2 consecutive quarters of year on year GDP growth.
The yield curve makes sense because core inflation forces the Fed to hike rates. If inflation rates rise above 3%, the Fed will need to hike rates aggressively to prevent a runaway inflation. Investors will usually flock to the longer end of the Treasurys when they feel that the Fed will start to cut rates and investors are content to park it at a slightly lower rate at a much longer tenor.
A higher interest rate causes discount rates to rise, and valuations fall. This is why I think we are undergoing a readjustment period.
I'm seeing Gold rising in the meantime and US 20+ years Treasury yields falling (time to long).
On average, when it happens on monthly charts, the correction is over 20%, which means a technical bear is triggered.
The S&P500 is down around 16%, MSCI Europe down 20%, MSCI Emerging Markets down 28%, Asia ex Japan MSCI down 25%. I still don't think the end is over. I believe there will be at least another 5% downside for S&P500, triggering the worst over bear market since 2011.
Meanwhile, the US 3 year Treasury Yield > 5 years. In a way, the yield curve has inverted, although it is not the traditional 10 - 2. Nevertheless it means a slowdown of the US economy is underway. It may not be a recession in the sense of 2 consecutive quarters of year on year GDP growth.
The yield curve makes sense because core inflation forces the Fed to hike rates. If inflation rates rise above 3%, the Fed will need to hike rates aggressively to prevent a runaway inflation. Investors will usually flock to the longer end of the Treasurys when they feel that the Fed will start to cut rates and investors are content to park it at a slightly lower rate at a much longer tenor.
A higher interest rate causes discount rates to rise, and valuations fall. This is why I think we are undergoing a readjustment period.
I'm seeing Gold rising in the meantime and US 20+ years Treasury yields falling (time to long).
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