Weekly Insights

Sep 25, 2018 | Ronald J. Wilcock


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September 20, 2018 - Insights into the equity, fixed-income, currency and commodity markets from RBC Wealth Management.

It’s hard to believe that summer is now officially over and thanksgiving is fast approaching. We are definitely looking forward to the impending celebration, the family gathering, and time together.

 

This Past Week and more; Most equity markets were strong around the globe last week. The S&P500 and the DOW were up 0.8% and 2.3% respectively. The S&P/TSX climbed 1.3% just nudging the Canadian market back to positive for the year to date.

Furthering our discussions about headlines vs. our analysts actual data and information; another item you have no doubt seen making headlines recently are dire warnings about the yield curve. An inverted yield curve in short, occurs when the 2 year US Government Bond is yielding more than the 10 year Bond i.e. it costs more for the Government to borrow short term than long term. This actual inversion has been a very reliable indicator of US recessions. Some alarmist headlines would have you believe this is upon us. To be perfectly clear; while the yield curve has become flatter it has NOT inverted. As our analysts have been emphasizing, there is a huge distinction between the two. Simply because it is flatter does not mean it is going to invert. To be sure, historically this inversion may occur at a future date. It could be some time though before that actually happens.

Very importantly though; when the yield curve actually does invert, our analysis of the past seven recessions indicate the average lead time to the start of a recession has been 16 months. This would put us to early 2020 at the very least.

Again, we do expect market dips over that time period but, the yield curve and our other indicators still place an actual recession out into the future and we believe there are solid gains to be had in the meantime.

 

The Weekend/Weather; It certainly looks like a rainy fall day out there. The forecast calls for more tomorrow, although spotty. At this point there is no more rain called for in the later part of the week but, temperatures do get cooler especially on the weekend.

Enjoy your first week of fall!

 

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