Tako Paddenburg’s Post

2. Yield curve inversion Smart investors know that successful investing is often a balance of risk and reward. Longer-term Treasury securities typically offer higher yields than shorter-term Treasuries in order to compensate investors for the increased risk they are taking. But sometimes, the yields on the short-term Treasuries (specifically the 2-year Treasury) surpass those of the long-term security (the 10-year Treasury). When this happens, the yield curve is said to invert. Duke University professor Campbell Harvey was the first to postulate that sustained yield curve inversion indicates an impending recession. This phenomenon typically happens during periods of rising inflation or other worrisome events, such as declining auto sales, wage growth, or other signs of an economy in distress. According to data from the St. Louis Federal Reserve, a recession could take place anywhere from six months to three years after a yield curve inverts:  In the above chart from the Federal Reserve Bank of St. Louis, the blue line illustrates yield curve inversion when it dips below 0 (in other words, times of trouble), while the gray bars indicate periods of recession. You can see how closely they correlate around the 1980 period, in particular, when the economy was mired in a three-year stagflationary funk. How does the current economy stack up? On July 5, 2022, the yield curve inverted again — and it has stayed that way ever since. Historically, that’s a sign of an impending recession, although the economy has gone 18 months without one already. The truth of the matter is, while every recession has been preceded by an inverted yield curve, yield curve inversions don’t always point to recession. In other words, the yield curve isn’t always a crystal ball. There has been one “false positive” reading of the yield curve, meaning an inversion took place, but a recession never occurred — that happened back in 1966. Do the times we’re in defy historical precedent? You be the judge. Where to find this information: You can find bond yield charts by visiting the Treasury Department’s website, which publishes them daily after the market closes. 3. Spikes in the Volatility Index (VIX) Everyone knows that periods of pronounced volatility go hand-in-hand with economic weakness, and the Chicago Board of Exchange’s Volatility Index, commonly known as the VIX, is one of the best indicators of market volatility. The VIX is calculated using market prices of S&P 500 put and call options. Basically, the higher the VIX reads, the more turbulent the trading environment — generally speaking, when the VIX rises, the S&P 500 drops. Here’s how to interpret its measurements: A VIX level above 20 is typically considered “high.” Anything below 12 is typically considered “low.” Readings between 12 and 20 is considered “normal.” As you can see, big volatility spikes go hand-in-hand with recession.

For those who follow the yield curve for signs of a recession: Alf makes some important observations here on the mechanics of how it evolves. If history is any guide, it is only NOW that recession risks are truly increasing. Will we have a recession in H1 2024? Time will tell…

Understanding yield curves is tricky if you’re unfamiliar, but this post is a great one for people to recognise the situation we’re in right now and the likelihood of a recession happening. It happens slowly, so slowly that we get convinced a soft landing may be possible

Credit to WELLS FARGO Investment Institute December 2023 2024 Outlook A pivotal year for the economy and markets https://t.ly/2bF1E 1). Global economy ● We anticipate a moderate global economic slowdown (including in the U.S.) in the first part of 2024, followed by a gradual, U.S.-led global recovery in the latter months of the year. ● We expect the U.S. dollar's peak to correspond with this economic cycle's bottom, though a global recovery later in the year should spark risk appetite and prompt a moderate pullback in the greenback. 2). Global equities ● We favor quality and a more defensive posture within equities as earings per share (EPS) decelerate and the economy slows. As a result, we prefer U.S. large caps over U.S. mid caps and small caps, as well as developed - market over emerging-market equities ● Health Care, Industrials, and Materials are our favored sectors while we hold unfavorable ratings on Consumer Discretionary and Real Estate. 3). Global fixed income ● We expect U.S. Treasury yields to remain volatile in 2024, declining early on as the economic slowdown gathers momentum but rising as the recovery evolves in the latter months of the year. ● High-quality credit, in both corporate and municipal bonds, remains paramount to our guidance 4) Global real assets ● The bull super-cycle' that began in 2020 pushed many commodity prices to decade highs. However, even the best of bull markets consolidate. We remain favorable on commodities but expect performance will continue to moderate as the global economy slows further ● For 2024, we are unfavorable on real estate investment trusts (REITs) as headwinds for the asset class remain strong and fundamentals continue to weaken 5). Global alternative investments ● Although financial distress levels have remained moderate thus far, we believe the uptrend will resume in the coming quarters and present a robust opportunity set for Distressed Credit strategies (both hedge funds and private-capital funds) ● Global Macro and Relative Value strategies typically exhibit low correlation to traditional equity and fixed-income markets and may provide an opportunity to diversify portfolios if traditional markets turn volatile. https://lnkd.in/gvVHitXd

Market Fall Advantages 1. Market Corrections as Healthy Adjustments Market corrections are a natural part of the economic cycle. Academic research, such as the study by Campbell, Lo, and MacKinlay (1997), highlights that corrections help to eliminate excess and bring prices back to realistic levels. 2. Opportunities to Buy at Lower Prices Warren Buffett famously stated, "Be fearful when others are greedy and greedy when others are fearful." Market downturns provide opportunities to purchase high-quality stocks at discounted prices. 3. Rebalancing Portfolio Market falls provide a chance for investors to rebalance their portfolios. According to a study by Smith and Desai (2018), rebalancing during downturns can enhance long-term returns by ensuring that portfolios remain aligned with investors' risk tolerance and investment goals. 4. Historical Resilience of Markets Historically, markets have shown resilience and an ability to recover over time. Research by Dimson, Marsh, and Staunton (2002) indicates that, despite periodic downturns, global equity markets have consistently provided positive returns over extended periods. 5. Dividends as a Cushion During market declines, dividends can provide a steady income stream. According to research by Fama and French (2001), dividend-paying stocks often exhibit less volatility. 6. Valuation Realignment Market falls help realign stock valuations with their intrinsic values. Graham and Dodd's seminal work, "Security Analysis" (1934), emphasises the importance of valuation discipline. 7. Testing Investment Strategies Market downturns serve as a litmus test for investment strategies. They highlight the strengths and weaknesses of various approaches, enabling investors to refine their methods. As noted by Malkiel (2003) in "A Random Walk Down Wall Street," downturns can reveal the robustness of passive versus active investment strategies. 8. Psychological Fortitude Experiencing market falls can build psychological resilience among investors. Behavioral finance studies, such as those by Kahneman and Tversky (1979), suggest that understanding and managing emotional responses to market declines can lead to better long-term investment decisions. 9. Economic Stimulus and Policy Interventions Market declines often prompt economic stimulus measures and policy interventions. For instance, during the 2008 financial crisis, coordinated efforts by central banks and governments helped stabilise the economy. Research by Blinder and Zandi (2010) illustrates how policy responses can mitigate the adverse effects of market downturns. 10. Long-Term Growth Potential Market falls provide a reminder of the long-term growth potential of investing in equities. Despite short-term volatility, equities have historically outperformed other asset classes. Jeremy Siegel's "Stocks for the Long Run" (2007) underscores the benefits of maintaining a long-term perspective and staying invested through market cycles.

🔮 Prediction and Commentary on the News 🔮 📊 The surge in bond yields following the recent jobs report has caused quite a stir in the market. Here's my take on what this means for investors and the implications for various industries: 💰 As bond yields rise, there are two key areas to consider: 1️⃣ Real Estate: Higher mortgage rates can potentially impact the housing market and affordability for buyers. If you're planning to purchase a property, it might be worth considering locking in a rate before they continue to climb. 2️⃣ Investments: Rising bond yields typically signal expectations of a growing economy and could potentially lead investors to shift away from other forms of investment, such as stocks. Assessing your investment portfolio and speaking with a financial advisor could be wise in these volatile times. 📈 The recent spike in yields is certainly concerning, but it's essential not to lose sight of the bigger picture. Here's why: 🕐 Historic Context: When compared to the late January highs, the current bond yields remain relatively high but not overwhelmingly so. ❄️ Impact of Snowball Selling: The ISM services data and subsequent selling have played a significant role in the dwindling of these yields. However, it's important to analyze their impact holistically and not let short-term fluctuations dictate long-term investment strategies. 💪 Key Levels as Indicators: The repeated visitation of the 4.19% ceiling emphasizes the importance of identifying key levels in the market. Today's trading has further highlighted this trend, reinforcing the role of technical analysis in predicting future movements. 📉 Looking Ahead: Based on the current market conditions, here are a few observations and predictions: 🛣️ Steady Progress Lower: After reaching a peak at 4.17% overnight, 10s have started to make a steady descent. This gradual downward progress, even in the absence of major fundamental motivation, hints at potential stabilization in the short term. 📆 Upcoming Trends: Keep an eye on economic indicators, such as job reports and ISM data, as they can significantly impact bond yields. Timely analysis and staying informed will be crucial in adapting your investment strategies. 🚨 Remember, predictions are based on the available data, but market volatility can always lead to unexpected turns. It's important to approach investment decisions with caution and seek advice from trusted professionals who can provide personalized guidance. 📈 If you found this analysis insightful, please feel free to connect with me and follow my profile for more updates on market trends and investment strategies. Wishing you all a successful and prosperous journey in the world of finance! 💼✨

BE CAREFUL WHAT YOU READ ON THE INTERNET Tiffany Wilding and Andrew Balls at PIMCO anticipate an economic downshift toward stagnation or mild contraction in 2024. But guess what? MOST analysts and investment "experts" predicted a contraction for 2023. What did we get? Double digit positive returns in most major global economies, and high single digits in Canada. If you listened to the "experts" last year, you underperformed. The best advice is to determine your investment risk tolerance, and to remain invested - regardless of what the "experts" say. 📲 905.441.1871 📩 Conor.Amyot@ig.ca https://lnkd.in/eiAiuKQq

As interest rates begin to level off, a new investment environment is emerging with opportunities that may not have existed in years. Diversifying portfolios – and making bold, conviction-led decisions – could be essential as performance diverges between companies, asset classes and economies. Uncertainty remains high, with the potential for an oil-price shock and the implications of November’s US election adding to the mix. But the good news is investors may be rewarded for taking risk again. Key takeaways: - In a break from consensus, we expect a recession in the US and think markets may be underestimating the extent to which major central banks will have to keep rates higher for longer. - An active approach to selecting and managing investments will be critical as not all assets will perform in an era where money has a cost again. - Markets may be volatile as uncertainty surrounds growth, interest rates and geopolitical events – but shifts may provide opportunities to build long-term positions based on strong convictions. - We think conditions are aligning to make fixed income a compelling proposition and see entry points within equities, with a focus on quality names and themes. - Diversification will be essential: the market environment and valuations may present opportunities in certain private markets such as private credit and infrastructure. By Stefan Hofrichter, Head of Global Economics & Strategy, Virginie Maisonneuve, Global CIO Equities, Franck Dixmier, Global CIO Fixed Income, Gregor MA Hirt, Global CIO Multi Asset and Emmanuel Deblanc, Global head of Private Markets #AllianzGI #Outlook #2024 #NavigatingRates #EmbracingDisruption

As interest rates begin to level off, a new investment environment is emerging with opportunities that may not have existed in years. Diversifying portfolios – and making bold, conviction-led decisions – could be essential as performance diverges between companies, asset classes and economies. Uncertainty remains high, with the potential for an oil-price shock and the implications of November’s US election adding to the mix. But the good news is investors may be rewarded for taking risk again. Key takeaways: - In a break from consensus, we expect a recession in the US and think markets may be underestimating the extent to which major central banks will have to keep rates higher for longer. - An active approach to selecting and managing investments will be critical as not all assets will perform in an era where money has a cost again. - Markets may be volatile as uncertainty surrounds growth, interest rates and geopolitical events – but shifts may provide opportunities to build long-term positions based on strong convictions. - We think conditions are aligning to make fixed income a compelling proposition and see entry points within equities, with a focus on quality names and themes. - Diversification will be essential: the market environment and valuations may present opportunities in certain private markets such as private credit and infrastructure. By Stefan Hofrichter, Head of Global Economics & Strategy, Virginie Maisonneuve, Global CIO Equities, Franck Dixmier, Global CIO Fixed Income, Gregor MA Hirt, Global CIO Multi Asset and Emmanuel Deblanc, Global head of Private Markets #AllianzGI #Outlook #2024 #NavigatingRates #EmbracingDisruption

"Investors mistakes: walking in the learning curve”   Losses in the financial markets are often challenging to endure and can be devastating for both individual and professional investors alike. The investing learning curve is a path paved with emotional and irrational decisions. Who hasn't reacted to media or friends recommending a stock with a short-term meteoric rise, only to witness a sudden crash a few months later? The COVID-19 period provides numerous examples, such as Moderna (a 20-fold increase in price in 15 months, followed by a 70% loss 6 months later) and Zoom,(in 2021 a 300% rise in 12 months, followed by  85% drop few months later). Bitcoins, bonds, predictions of nasty market crashes, recessions... and the list goes on with other examples that continue misleading investors' decisions. Conducting your own due diligence could have avoided many losses such as by simply holding the S&P 500 index in your portfolio. 😉 The article by D. Neufeld below summarizes the 20 most common investing mistakes according to the CFA Institute. While these mistakes are part of the learning curve for any investor, and the future of the markets are unpredictable, understanding the risks, having a long-term investing plan, and acquiring financial education could contribute positively to wealth accumulation." https://lnkd.in/eRs4N8Xw