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What’s Spooking Bond and Stock Markets?

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Bond markets versus stock markets

Usually, bond markets (BND) more accurately predict future market moves than do stock markets. Bond markets seem to be worried about future growth despite the recent 90-day US-China (SPY) (FXI) trade war truce. Euphoria from the truce seems to be wearing off, and investors are waiting for more details about how the talks between the two sides could progress. Today, stock markets opened lower, with the S&P 500 (SPY) down 0.62%, the Dow Jones Industrial Average (DIA) down 0.70%, and the NASDAQ Composite (QQQ) down 0.55% as of 10:15 AM Eastern Time.

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Stock markets get spooked

Stock markets (QQQ) (DIA) have also been spooked by the inversion of part of the yield curve (TLT). While investors were previously quite bullish on the prospects of the US economy in 2019, recent data and the yield curve inversion have put those prospects into question. Leading US indicators, such as business investments and housing data, are forecasting slower economic growth, and US earnings growth and margins may have peaked as the sugar high of tax reforms wears off.

Reasons for inversion

There could be several reasons for the yield curve’s flattening, with some being temporary. According to CNBC, one reason could be that pension funds are buying ten-year Treasuries as safety bets. Other reasons include easing inflation fears making ten-year bonds more attractive, and US-China trade uncertainty.

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