04|10|2019

The Relentless Bull | April 5, 2019

Fear of a recession led headlines two weeks ago and suddenly markets surge for the last week.  Why?

Concerns of a recession may have been overblown…

The 3-month treasury interest rate was higher than the 10-year treasury rate. A valid concern as the yield curve inverted. The difference between the 2-year and 10-year remains in a positive slope. That indicator has been a firmer indicator of a recession in the past.

Last week started with unexpectedly strong manufacturing and services data out of the second largest economy in the world, China. As the week rolled on, strong manufacturing data came out of the US as well. It appears more people are feeling confident that a trade deal will get done between the world’s two largest economies.

Additionally, a hard close of the Mexican/US border was averted Thursday. Trump announced a one-year timeline for Mexico to show results in fighting illegal immigration. If they fail, a 25% tariff on Auto imports is likely and a hard close to the border.

Downbeat data did exist last week…

The UK has still not resolved their Brexit concerns. The German economy is projected to grow at a very diminished .8% for 2019. Also, Japan’s wage growth is projected to grow less than 1% for 2019, making 2% inflation unattainable.

Volatility and VIX…

Volatile growth for the remainder of this expansion is likely. The calm of the first half of the expansion, which saw VIX all the way down at 9.6% has passed. We have moved into a more sustained VIX at around 14 and will likely remain here for a while.

 

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