The Bond Market Is Sounding Its Most Severe Alarm in Decades, and It Could Mean Trouble for the Stock Market
The U.S. economy expanded 2.5% last year, an acceleration from 1.9% in 2022 and above the 10-year average of 2.3%. That economic momentum sent the benchmark S 500 (SNPINDEX: ^GSPC) soaring 24% in 2023, its third-best annual performance of the past decade.
Not many people saw that coming. After inflation hit a four-decade high in 2022, the Federal Reserve compensated by raising interest rates at their fastest pace in decades. Many economists initially thought that would lead to a recession in 2023. But that recession never happened, and the consensus view now calls for a soft landing, a scenario in which inflation normalizes without an economic downturn.
Indeed, economists surveyed by The Wall Street Journal in April 2024 estimated the odds of a U.S. recession at 29%, a significant decline from 61% in April 2023. However, a popular bond market indicator with a near-perfect track record is still sounding an alarm: The 10-year and 3-month Treasury yields have been inverted since November 2022, and that could mean trouble for the stock market.
Source Fool.com
