The Flattening Yield Curve Isn’t a Recession Indicator Now. Here’s Why.


This commentary was issued recently by money managers, research firms, and market newsletter writers and has been edited by Barron’s.

RBA’s Insights
Richard Bernstein Advisors
March 24: Over the past 40 years, the U.S. economy has slipped into recession six times. During those 40 years, the difference between 10-year [Treasury] yields and 2-year yields (2s10s curve) has reliably dipped into negative territory on average about 18 months before GDP turns negative. Today the 2s10s curve is once again knocking on the door of becoming inverted (while some curves, like the 3s10s and 5s10s, already are), causing quite a stir among market watchers that recession is imminent.

Although growth may slow as the Federal Reserve tries to rein in inflation, our work suggests investors will be better served looking elsewhere for recession signals. In fact, our models show the flatness of the curve could be more a consequence of the Fed’s relentless buying of bonds, and the consequent growth of their balance sheet, rather than because of a looming growth shock.

Labor-Market Dislocations

Macro Markets Strategy Industry Report
March 24: Low-wage workers represent 44% of the U.S. workforce and are disproportionately women, and black and brown people. The majority are 25 to 50 years old, work in a small number of occupations, endure economic hardship, and face an insurmountable path to higher -paying jobs. One-third live below 150% of the federal poverty level (approximately $36,000 for a family of four) and almost half lack a high-school diploma. Jobs associated with low wages are retail sales, building cleaning, food and beverage services, and personal care services.

Wage pressures in the bottom half of the income distribution should ease as healthcare and childcare concerns subside. However, overall wages are expected to continue to climb in 2022 as pay increases broaden to other income groups. Dislocation in labor markets was caused by several factors—first, older workers retiring early, spurred by the pandemic; second, immigration declining; third, workers requiring reskilling; and fourth, workers shifting priorities from solely financial to overall wellbeing. Currently, the economic landscape favors workers. Companies that apply resources to address wage, training, and broader wellbeing requirements will likely perform better than those that ignore them.

Happier Days for Stocks

Market Update
Sierra Alpha Research
March 24: The

S&P 500

index is once again attempting to regain its 200-day moving average, and in doing so would certainly confirm that the short-term strength we’ve seen over the past week could materialize into a more sustained bullish move.

I’m also seeing plenty of new highs in my weekly scans, focused in Energy, Financials (but not the big banks!), Health Care, Industrials, and Materials.

So the markets are still choppy sideways, while plenty of individual names are breaking out. I feel this speaks more to the growth orientation of our major equity benchmarks, and how less-ideal charts in Technology, Communication Services, and Consumer Discretionary can make a fairly robust environment for stocks appear less robust at the top level-indexes.

A Strong Case for Gold

Guns, Butter, and Gold

Ahead of the Herd
March 23: Is there a connection between increasing global conflict and higher military spending, and gold? We see two points of contact. First, gold is a safe haven in times of political or economic uncertainty. The second is that military spending feeds debt.

Defense is the largest portion of the U.S. federal budget behind Social Security. These two items are increasing the debt exponentially, adding deficit after deficit to the mounting pile, which, when combined with Covid-related government spending, sits at a jaw-dropping $30 trillion…

A country must decide how much to spend on defense/the military (guns), against the amount budgeted for items needed for non-defensive purposes (butter). For the United States to remain the ‘world’s cop’, it will have to maintain its strong military. There can be no letting up. This comes at a major cost.

As investors, we should pay attention to what is happening around us. Military spending is on the rise globally, and central banks are hoarding gold. In these uncertain times, perhaps it would be wise to follow the smart money and do the same. We continue to buy physical gold and silver on the dips and to invest in quality junior resource companies, which historically offer the greatest leverage to rising metals prices.

Who’s Afraid of High Gas Prices?

Special Commentary
Wells Fargo
March 23: The most consistent theme in our consumer coverage over the past year has been the fact that inflation is the biggest challenge to consumer spending; it is the reason we lowered our full-year consumer spending forecast in each of the past three months. Other headwinds like Fed tightening, the Omicron variant, and supply shortages all take a backseat to the fact that prices growing faster than incomes creates an unsustainable backdrop for consumer spending growth. That said, the hand-wringing over the recent run-up in gasoline prices overstates the importance of this factor on consumer spending.

None of this is to suggest that higher gas prices are a positive for consumer spending. Still, a clear-eyed assessment of the facts on this topic suggests higher gasoline prices alone aren’t enough to meaningfully impact overall consumer spending, even if they force slower spending growth in other categories. Over time, wages have outpaced gasoline prices, which means that even though gas prices are near record highs, the outlays on gas and other energy products are not nearly as high as they were in prior cycles. High gas prices are a headache, but not a sign of serious illness for consumer spending.

Larry Fink on Deglobalization

Larry Fink, chairman and CEO of


(ticker: BLK), pens an annual letter to shareholders that is closely read on Wall Street. In this year’s letter, Fink proclaimed an ‘end’ to globalization. Here’s an excerpt:

March 24: Russia’s aggression in Ukraine and its subsequent decoupling from the global economy is going to prompt companies and governments worldwide to re-evaluate their dependencies and re-analyze their manufacturing and assembly footprints–something that Covid had already spurred many to start doing.

And while dependence on Russian energy is in the spotlight, companies and governments will also be looking more broadly at their dependencies on other nations. This may lead companies to onshore or nearshore more of their operations, resulting in a faster pull back from some countries. Others—like Mexico, Brazil, the United States, or manufacturing hubs in Southeast Asia—could stand to benefit.

This decoupling will inevitably create challenges for companies, including higher costs and margin pressures. While companies’ and consumers’ balance sheets are strong today, giving them more of a cushion to weather these difficulties, a large-scale reorientation of supply chains will inherently be inflationary.

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