Tags: Kleintop | yield | curve | stocks

LPL's Kleintop: Yield Curve Indicates Stocks Won't Suffer Bear Market

By    |   Wednesday, 14 May 2014 04:00 PM

Stocks are likely to suffer a correction of 5 percent or more this year, but a bear market, meaning a drop of at least 20 percent, is "very unlikely," says Jeff Kleintop, chief market strategist for LPL Financial.

A crucial reason for his confidence is "an indicator with a flawless track record over the past 50 years: the yield curve," Kleintop writes in his weekly commentary.

Editor’s Note:
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"Bull markets end and bear markets begin, as they did in 2000 and 2007, when the Fed pushes short-term rates above long-term rates. This is referred to as 'inverting the yield curve.' "

An inverted yield curve preceded all seven recessions of the last 50 years, he says.

"The yield curve inversion usually takes place about 12 months before the start of the recession," Kleintop writes. "The peak in the stock market comes around the time of the yield curve inversion, ahead of the recession and accompanying [a] downturn in corporate profits."

Given that 10-year Treasurys now yield 252 basis points more than 3-month Treasurys, an inversion isn't coming anytime soon, he says. So the same is likely true for a bear market.

Last week, the yield curve actually steepened by the most in almost eight months, according to Bloomberg News, after Federal Reserve Chair Janet Yellen's congressional testimony dashed speculation that the Fed will raise short-term rates next spring.

"It’s the front end coming down," Adrian Miller, director of fixed-income strategies at GMP Securities, told the news service. Yellen "moved the needle for when rates rise to the back half of 2015."

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks

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Stocks are likely to suffer a correction of 5 percent or more this year, but a bear market, meaning a drop of at least 20 percent, is very unlikely, says Jeff Kleintop, chief market strategist for LPL Financial.
Kleintop, yield, curve, stocks
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2014-00-14
Wednesday, 14 May 2014 04:00 PM
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