A Tale of Two Tapes

There’s nothing quite like the promise of a rate cut to get the animal spirits of Wall Street stirring.

Since early June, the market has been marching higher thanks to growing conviction that the Federal Reserve will lower rates to keep the economy expanding. In fact, the only sustained pause for equities came after an unexpectedly strong jobs report cast doubt on timing of the first cut.

The thinking goes that since cheap money has fueled growth and a rise in equities for years, why shouldn’t it work going forward? While this view has become conventional wisdom, at least one asset class in the market doesn’t seem to be on board.

A look at the gap between yield changes on the 10-year Treasury and performance of the S&P 500 points to two very different views on what’s next for the economy—with lower yield generally forecasting a slower economy. The discrepancy has reached levels not seen since pre-financial crisis in early 2007.

While we don’t foresee a repeat of those days, the disconnect should serve as a reminder how quickly today’s momentum can turn and why fundamental analysis could take on greater importance going forward.


Past performance does not guarantee future results.

Investing involves risk, including the potential loss of principal. There is no guarantee that a particular investment strategy will be successful. Value investments are subject to the risk that their intrinsic value may not be recognized by the broad market.