S&P 500 Stalls Above 4,500 as Yield Curve Normalization Begins: Is the Rally Over?
Stocks finished flat yesterday, following the slightly stronger-than-expected retail sales and weaker PPI data. Overall, yields and the dollar rose, which helped hold the S&P 500 to a gain of only 16 bps.
Additionally, we continue to see yield curve normalization as the 10-year rate moved higher than the 5-year rate and back into positive territory. This isn’t the first time this has happened but appears that the process of a normalized yield curve is happening.
I think this process will continue, as the 2/10 inversion has already lasted longer than 2000 and within a month or so of surpassing the inversion before 2008 and within 100 days of the 1990 inversion.
So, the days of the yield curve remaining inverted seem limited at this point based on historical standards.
Even the 10-5 inversion is getting old and has already far surpassed the inversions of 2000 and 2008. The inversion of 1990 seems to have lasted a few days longer than the current inversion.
The only thing that could spark a steepening at this point will be the jobs data and a rise in the unemployment rate.
Today we will get the initial jobless claims, and we will want to pay close attention to how the yield curve responds to the data not just the direction of rates.
Obviously, data that comes in higher than expected would move this steepening of the curve further along.
The S&P 500 hit some solid fib levels yesterday, at the 78.6% retracement level from the July to October decline. It also reached the 61.8% extension of wave A. The structure from July to October is a clear five waves, and the structure off the October lows is a straightforward three waves.
If the rally stops here, this marks the end of wave 2, and we will be entering wave 3, which would
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