This Huge Divergence Between Treasury Bonds And The S&P 500 Won’t Last Forever – Mike Swanson (02/11/2019)

The third quarter of 2018 was brutal for the US stock market, but we have been having a very nice rally in the markets since the day after Christmas. The S&P 500 has even managed to go back up to its 150 and 200-day moving averages on the technical analysis charts.

However, this S&P 500 rally is not happening as fast as it was off the bottom, but that can be expected as it is now right on these moving averages, which are key resistance. No matter what it does it is likely to pause and drift around them now for several weeks.

Stock market bulls expect a pause and massive breakout rally to new highs and beyond. They say the fourth quarter 2018 stock market dump was irrational and that the economy is booming. They believe that the SPDR S&P 500 Trust ETF (NYSEARCA: SPY) is the place to be if you are investing in exchange-traded funds.

There are divergences though that shouldn’t be happening if this were actually true. I mentioned how the Baltic Dry Index has been fading to new lows last Friday and today I want to point out to you that US Treasury Bonds are not trading as if economic growth is going to accelerate in the second half of this year.

This is chart above of the yield curve and as you can see it has not gone up with the stock market rally. The yield curve is the gap between two-year Treasury bonds and ten-year bonds.

There isn’t even a quarter point spread between the two of them.

This is why the Federal Reserve is on pause now when it comes to more interest rate hikes and why the price of gold has been doing so well in the past few months.

The Treasury market is now forecasting real economic growth in the second half of this year. It’s telling us that the macro cycle has peaked out.

It’s not confirming the stock market rally at all. That doesn’t mean that the stock market is going to dump this week, but that before the year is over either stock market bulls will be proven wrong or the yield curve chart on this page will be.

I talked with Ike Iossif on where I think things are going in this interview you can listen to by clicking here.