Also, the case for buying Tesla’s stock and how to plan for retirement
It is human nature to fear missing out as prices skyrocket, But all bubbles burst eventually.
Ian Shepherdson of Pantheon Macroeconomics predicts a 25% decline in U.S. home sales. What will that do to prices? Weigh in with your thoughts.
A classic signal for a recession
On March 24, the yield on five-year U.S. Treasury notes was 2.40% and the yield on seven-year notes was 2.43%. Both were higher than the 2.38% yield on 10-year Treasury notes. Normally, the longer the maturity, the higher the yield on bonds with similar credit risk.
- In the Market Extra column, Viven Lou Chen explains how inverted yield curves signal recessions.
- Vijay Modhavdia, managing director of Deuterium Capital Advisors, explains why recession signals have led him to reduce exposure to financial stocks by 50%.
- When interest rates rise, bond prices fall. As part of the In One Chart series, Steve Goldstein shows bond prices are on pace for their worst bear market since 1949.
- William Watts explains why the stock market hasn’t fared worse as the Federal Reserve has signaled more aggressive interest-rate increases.
A counterargument for bank stocks
While the Treasury yield curve for 5-, 7- and 10-year notes has been inverted, the spread between yields on 3-month Treasury bills and two-year Treasury notes has widened considerably. This is good news for banks, as loans reprice at higher interest rates while the cost of deposits remains low.
Sam Peters of ClearBridge makes the case for bank stocks as industry profitability increases and credit quality remains strong.
Is Tesla’s stock cheap?
Shares of Tesla were down 18% through March 24 from their closing high on Nov 4. The electric-car maker’s factory in Berlin opened this week and is expected to add 500,000 units to the company’s annual production capacity.
Wedbush analyst Dan Ives, a longtime Tesla bull, believes Tesla’s stock has been oversold.