Tariffs, Death Cross, Inversion

Is this the big one? I don't know! But it could be.

For months I have been writing about what I thought has been the slow rolling over into a bear market. I thought the 2% rule had been invoked in Q2 (2% rule is an average of a 2% decline three months in a row). Since then, my belief about a bear having started has looked right some of the time and wrong some of the other time.

Today's drop is a pretty good kick in the stomach that appears to have stemmed from Kudlow and Mnuchin having backed off of the President's Tweets from the G-20 dinner. This of course came after a nice lift on Monday (although Mark Yusko noted that from the opening print to the close the market was actually down and this is, of course, correct) that seemed to stem from a Tweet saying a deal had been reached. It appears they actually just agreed to kick the can down the road for 90 days but no one seems to know when the 90-day clock starts.

The yield curve made some progress toward inverting as two and three year Treasuries inverted with the five year Treasury. This isn't really an inversion insomuch as banks don't borrow at three years to lend at five but the two ten spread is flattening (about 11 basis points as I write this) as the ten year went below 3%. A yield curve inversion is recessionary because it impedes access to capital but it is important to realize that there is a lag effect of quite a few months and for now we don't have the type of inversion that leads to a recession. I am not denying it will happen but we are not there yet is my point.

The S&P 500's 50-day moving average (DMA) is about to go below the 200 DMA (Stockcharts.com has the two DMAs six points apart as of today) making what is called a death cross. Crossovers matter but the history of the death cross isn't necessarily terrible (Bespoke has written about this) but of course, a death cross does occur at some point fairly early in a bear market (based on percentages it is still early if indeed a bear market has started).

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