Undun! S&P 500 Index Comes Undone From 10Y Treasury Yield As Term Premium Hits Low

The Treasury market has come undone (or undun as The Guess Who sang).

The S&P 500 index has come undone from the 10-year Treasury Note yield.

spxgt10

Meanwhile, the 10-year term premium is at a new low, likely due to persistently low inflation.

tpflush

No sugar tonight?  Don’t worry! The probability of a Fed rate cut in 2019  is minimal.

ratecutprob

US Real GDP Rises To 3.1% YoY, 10Y Treasury Yield Rises (Growth Stocks Continue To Rise Relative To Value Stocks)

The advanced US GDP report is out and it is a positive. YoY Real GDP growth rose to 3.1%.

ecoq4

It’s a major win for the Trump administration, which surpassed its 3% growth goal.

gdpyoy

Consumer spending, which makes up two-thirds of the economy, was solid but still a slight disappointment as confidence was hurt last year by the stock market swoon.
Non-residential investment held up with a 6.2% gain and R&D spending surged, which could have positive impacts on productivity gains and wages.

It’s a Goldilocks report for the Federal Reserve: inflation near target, slower but solid growth. This reinforces the patient approach to interest rates.

Still, bond market bets that the Fed will be on hold all year are a bit less sure in the wake of the 4Q numbers. Yields on 10-year Treasuries rose in the wake of the report.

ust10gdp

The Russell Growth index spread over the Russell Value index resumes its rise.

russellvg

But the Russell 3000-1000 spread (size) actually has declined.

russell30001000

 

Net Interest Margin — The New Normal (Bank Stocks Not Reacting Well To Balance Sheet Reduction)

Net interest margin,  a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits), has shown an interest pattern from before to after the financial crisis of 2008.

nimfed

Prior to the financial crisis of 2008, NIM was falling for the most part. But after 2008, NIM rose rapidly in 2009 and 2010. From 2010 to 2015, NIM steadily fell. But once 2015 hit. NIM has been steadily rising with The Fed Funds Target Rate.

But for US bank stocks, they have not fared well with The Fed’s balance sheet unwind.

spdrbank