Stocks Stumble As Yield Curve Inverts

Associated Press ^ | 27 December 2005 | Ellen Simon

[rhombus]

NEW YORK (AP) -- Stocks stumbled Tuesday as the bond market gave signals that in the past have preceded economic slowdowns.

The yield curve, the spread between the yields of short-term and long-term bonds, inverted for the first time in five years. That means short-term interest rates are higher than long-term interest rates. Investors have been watching the yield curve closely because, in the past, inverted yield curves have usually preceded a recession.

[DManA]

Have fun counting your coins.

[Protagoras]

Thanks. I already got an ugly tie though. :^}

[TBall]

I think the averages are setting up nice for 06. Wouldn't mind seeing the DJIA fall a couple hundred points before the end of the year. Hold above ten five and let her rip in January.

[Protagoras]

Wouldn't mind seeing the DJIA fall a couple hundred points before the end of the year.

Do you plan to buy one of those thirty stocks?

Are you buying or have you already bought?

[Safetgiver]

Three pundits, including Stein, Sherman and somebody else (didn't get his name) predicted the Dow will bark at 15 in the 2006 year.

[TBall]

No I'm a small cap man, but I do like the way the DJIA is setting up and would not be surprised to see support hold above ten five and eleven be taken out in 06.

[Protagoras]

I'm more than skeptical. Any chance of you making a mistake? Any way we can get some hard info regarding that?

And with all due respect, that would only be three people.

[Protagoras]

No I'm a small cap man, but I do like the way the DJIA is setting up and would not be surprised to see support hold above ten five and eleven be taken out in 06.

11,000? That could be done this week. We were 85 points away before today's sell-off.

In any case, if you aren't going to buy them, why would you like to see them sell-off?

I'm curious, are you already fully invested or looking to get in?

[TBall]

I would like to see 06 get off to a good start by having a strong January. By pulling in a little bit before the end of the year the DJIA can set up to make a nice run in Jan.

[Protagoras]

This is the only comment on his predictions I can find so far on the net.

COLVIN: "But when you come down to it, you're saying now is one of those good times to buy."

STEIN: "Now is a time when by historic measurements you will get excellent returns over the long run. What it will be next month or the month after, I have no idea. But for the next 10 or 15 years, now I think is a pretty good time to buy."

One would imagine if he was predicting an AMAZING rise in the market, 35%, he would have said it.

[Protagoras]

By pulling in a little bit before the end of the year the DJIA can set up to make a nice run in Jan.

Oh.

I have seen no evidence in all my years in the market that a pullback would be helpful in that regard. But, I admit I have never done a lot of research on the speculation that it does.

So, you are or aren't invested yet?

[stocksthatgoup]

Historically this is not a true inverted yield curve. A radical yield curve would show 1month>3month>1year>5year>30yr interest rates. Having been in the financial industry for over 30 years, I would not label this an inverted yield curve.

[Protagoras]

I have not commented on the inversion or lack thereof.

Quite frankly, I find it only mildly interesting. Particularly as a predictive tool.

Because I find predicting the future stock market direction to be largely a fools errand. Most professional traders eschew the prediction in favor of the process. I number among them.

[TBall]

"I'm curious, are you already fully invested or looking to get in?" I guess you could describe me as more of an opportunistic trend follower on both the long and short side. I don't trade the indices.

[Protagoras]

I guess you could describe me as more of an opportunistic trend follower on both the long and short side.

Trend following is an excellent approach. Of course, identifying it is not always easy.

I don't trade the indices.

I have found using both to be a good approach. Particularly in advising clients who have differing risk profiles and investing acumen.

Do you invest (or trade) in individual securities? If so, what is your approach?

Sorry for being so nosy, it's really market research on my part.

[expat_panama]

S&P up 11% minimum, DJ at 15000 before year end and overseas seeing records.

For years the trend has been with lack luster overseas stocks vs. solid US stocks, especially with small caps. 

Notwithstanding this latest daily doom prediction, I'm fully into small caps until I see reason not to be.

[Safetgiver]

This was a news cast with one of the money/stock shows probably two weeks. He agreed with the third guy that the
Dow could see 15 this year. Sherman flat out said it on somebody else's show (Cavuto?).

[ex-Texan]

This is typical MSM reporting and hype over a single day's trading results. You cannot predict anything from one day. But economists are debating the negative news quietly behind closed doors. Actually, the yield curve on U.S. treasuries is very flat and not inverted as the AP reporter suggests. The first time that has happened in over five years. But wait until the first quarter of 2006. Many signs of a economic slowdown are already appearing. The real estate bubble appears to have burst in Boston already. Asking prices fell an average of 20% over $ 100,000 + in November. At risk are 800,000 jobs in the mortgage and real estate industries. (Want to learn more?) California may have a very difficult 2006, according to experts at the Anderson School of Business (UCLA).

Merry Christmas and a Happy New Year !

[RinaseaofDs]

W is an MBA. He can use this, perhaps, as a way of reinforcing the need for additional tax cuts. For sure it will be effective in forstalling any increase in taxes, or increases in spending.

The inverted yield curve is one pretty good harbinger of recession. It's not the only indicator.