Keep an eye on the yields…

We may disagree about the state of global warming, but when it comes to the equity markets… it’s starting to get pretty warm. This must be the ‘melt-up’ Mr. Miller spoke of last week? Good corporate earnings, a change in the tax regime and plenty of confidence will keep the momentum in place… until it doesn’t. The tide is still rising and it’s difficult to tell who’s lost their trunks in the current.

Even the bond market is feeling the heat, according to the expected inflation gauge: which is measured by the difference between the actual yield on the 10 year note and the 10 year inflation adjusted rate. This is a proxy for expected inflation over the next 10 years, and it has recently climbed above 2%. Did anyone notice the recent rise in the nominal yield of the 10 year? Historically, when bond yields rise investors allocate more of their capital to fixed income. This isn’t happening yet, but keep an eye on yields. And if you’re worried about the Fed becoming too aggressive and inverting the yield curve… don’t. Mr. Powell will certainly be diligent and attentive to this possibility. Keep in mind that every recession has been preceded by an inverted curve, but not every inverted curve has resulted in a recession.

Otherwise, growth is projected to be good and the labor market continues to be strong. Investment spending will help productivity and in turn should help wages. Productivity over the past few years has been less than stellar but is improving thanks to investment spending by corporate America. Onward we go.

LaSalle St. Investment Advisors, LLC
940 N. Industrial Dr.
Elmhurst, IL 60126