Morning Comment: It's Rarely Different This Time

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• Trump wimps out again
• More head winds than when Trump's last flip-flop took place
• The lag between "inversion" & recession is irrelevant
• It's rarely "different this time.

Trump wimps out

President Trump has backed-off once again on his tariff threats... and is getting nothing in return. However, the stock market is facing a lot more headwinds today than it was when the President backed-off the last time. The yield curve has inverted, Hong Kong is at a boiling point, and the European banks have fallen another 14% (they were already down 33% from their 2018 highs).

We invest in stocks & other assets, not recessions

I keep hearing how the inversion of the 2yr/10yr Treasury Yield spread is not a concern because there is usually a lag of 14-18 months before the economy falls into recession... that is irrelevant. We don't invest in recessions, we invest in stocks and other risk assets.

Yes, sometimes there is also a long lag between an inverted yield curve and a significant decline in the stock market (think 2006/07 and the late 1980s). However, there are other examples of when an inversion was followed quickly by an important decline in stocks.

Near-term support/resistance levels have important intermediate-term implications

I think it is more likely that a compelling decline will come much sooner this time around. In fact, the battle lines are well drawn on the S&P 500 Index and a break of either the short-term support or short-term resistance level should be very important to the next significant intermediate move in the stock market. 

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