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 up despite tariff announcement

Major indices are up at mid-day Tuesday with the announcement from President Trump that tariffs on $200 billion in Chinese goods will go into effect on September 24th. While this would usually have a negative effect on the market, the fact that the tariffs will only be 10% instead of the anticipated 25% has seemingly been taken as a positive. The tariffs will move from the 10% up to the original expected 25% sometime in 2019. Investors also seem to be less and less shaken by trade war news, as it has been a long road of rhetoric and volatility, and are now taking trade talk more with a grain of salt, which may or may not be a good thing. ...  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