[Go] The bear market is far from open

LPL Financial chief economist Jeffrey Kleintop said that investors who want to find the right opportunity to short the stock market could do better, such as the bond yield curve, if they put their eyes on something else. The yield curve, he says, has been successful in predicting the market's peak in the past 50 years, but it does not show signs of a market peak at the moment.

(The Green line represents the 10-year bond yield minus the 3-month yield difference, the yellow line represents the S & P 500 index, Source: MarketWatch)

The yield curve is another way of expressing the relationship between short-and long-term bond yields. It is favored by economists, because the yield curve can explain the economic health.

A steep yield curve means that the difference in yields for different years of government bonds is widening, suggesting that the economy is getting better. Conversely, if the yield curve flattens, the prospects for economic growth are even more uncertain.

Kleintop said short-term Treasury yields would rise sharply if the Federal Reserve raised major refinancing rates sharply. If short-term treasury yields rise above the long-term yield curve, we call it the reverse of the yield curve. The reverse yield curve implies that the recession is coming, which also means the end of the bull market.

Investors can use a combination of multiple yield curves to calculate yield differentials, but kleintop choose to use 3-month Treasuries and 10-year Treasuries. The following is the time of the last 50 years when the yield difference is less than 0.

Kleintop writes that every recession in the last 50 years can be predicted by the Fed's interest rate hike, which typically occurs 12 months before the onset of the financial crisis, but the range is 5-16 months.

The following is the annual Treasury yield curve:

(US Treasury yield curve, Source: Marketwatch)

Kleintop also writes that even if the long-term interest rate is below 2.6%, the transfer yield difference of 0.5% requires the Fed to raise interest rates from around 0% to 3%, according to a new survey showing that the Fed will raise interest rates to 2017 by the year 3%. Implementation shows investors are far from worrying about a bear market in the US.

[Go] The bear market is far from open