(New York)

Pay attention, the yield curve just inverted. And we are not talking about some esoteric swap rate most have never heard of. Yesterday the spread between two-and five-year Treasuries fell below zero, the first major inversion of this bull market. The 2- and 10-year spread is the most typical benchmark for gauging an inversion, but the 2- and 5-year is significant. Yield curve inversions are one of the most accurate predictors of recession, with one preceding the previous several recessions.

FINSUM: One very important thing to remember is that it often takes many months (or years) for a recession to begin once a yield curve starts, so there is still plenty of room for the economy (and markets) to run.

(New York)

Markets are having a very rough day. Both the S&P500 and the Dow are down almost 3%. Financials have been leading losses. The selloff appears to be centered on fears over the fragility of the US-China trade “truce”. Treasury bonds have been rallying, leading to selloffs in tech and banks. The Treasury curve started to invert yesterday, which also seems to have spooked investors.

FINSUM: What a difference a day makes! Just yesterday it seemed like stocks might be lined up for a nice end of year run. A day later, the trade trace has created more tension than before and the yield curve is starting to invert.

(New York)

This is a day where investors need to take a deep breath. Markets are plunging, the yield curve just inverted, and there are major fears about the durability of the US-China “truce”. One thing to take heart in is that even though they are good predictors, a yield curve inversion doesn’t mean everything. It is important to note that it is the two and five-year Treasuries that have inverted, not the two and ten, which could mean this is just a temporary kink. For instance, in 1998, this pair turned negative without the rest of the curve following suit.

FINSUM: On top of the last point there, remember that inversions don’t cause recessions, they are just the market predicting slower long-term growth. That said, they seem to create self-fulfilling prophecies.

(London)

The Brexit situation seems to be getting worse and worse (or maybe better and better, depending on where you stand). In an embarrassing defeat, PM Theresa May just lost a Parliamentary vote regarding her Brexit deal which now gives Parliament the right to vote on any final deal. Parliament also ordered her government to release the legal advice they had received regarding the departure from the EU, an unorthodox move that shows a lack of faith in the PM.

FINSUM: What this means is that Parliament now essentially has the right to block Brexit, or call for a second referendum. Sterling plummeted on the news.

(New York)

Markets and the global economy got some very welcome news this weekend. On the sidelines of the G-20 conference, President Trump and Chinese leader Xi came to a “truce” in their trade war spat this weekend after what they both called a “high successful meeting”. Accordingly, several industry-specific stocks should react well to the news. These stocks are: Stanley Black & Decker, Caterpillar, Emerson Electric, AGCO Corporation, and 3M.

FINSUM: Many of these stocks already have big tariff-driven headwinds in their 2019 outlooks, so the possibility for big reversals seems likely. A lot of gloom had already set in, which means there is significant upside.