T-Bond/CPI Gap Positive But Narrow

The Federal Reserve's campaign to raise interest rates has lifted yields across the curve, despite a pullback at the long end. Once again, the gap between the 10-year government bond yield and the core rate of inflation is positive. But even though rates have risen, so has inflation -- and bonds still appear expensive compared to inflation. Over the past 12 months, the 10-year bond yield has climbed from 2.3% to 2.9% as investors anticipate stronger economic growth. Meanwhile, the core CPI ex-food and-energy rate has risen from 1.7% to 2.4%. When we compare the two, we find the current T-bond/inflation gap is now 50 basis points. Since 1980, the normal gap between the 10-year bond and inflation...  has been 280 basis points. Since 2000 (perhaps a more-comparable period including the last two recessions and bear markets), the gap has averaged 150 basis points. If we were to add 160 bps to the current inflation rate, we arrive at a target 10-year bond yield of 4.3%. The model says that's where rates are headed, but we don't expect to see the 10-year reach that level until at least 2020.    more

Argus President John Eade discusses the upcoming Sector Classification

Stocks rise as tariffs are less bad than expected

Futures trading puts U.S. stocks on pace for a higher open Tuesday. President Trump went ahead with new tariffs on $200 billion in goods imported from China after the close last night, but at an initial rate of 10%, moving to 25% in 2019. The lower rate, and omission of some products from Apple (AAPL) and FitBit (FIT) seems to have helped markets shrug the new import duties off. The Dow Jones is up 0.22%, the S&P 500 is up 0.15%, the Nasdaq is up 0.07%. ...  more

Coming this Fall: the Communications Services Sector

Many parts of our lives look much as they did 20 or (in some cases) 100 years ago. Houses and cars — cosmetic changes notwithstanding — perform the same functions for us as they did for our parents and even grandparents. ...more