According to DataTrek, the difference between the yield on the 2 and 10-year Treasury notes is the widest it’s been in about 40 years, which indicates a looming recession and, possibly, more pain for stocks. Michael Wilson, the chief U.S. equity strategist at Morgan Stanley, echoed those warnings. A research note released on Monday stated that although a consensus is forming behind the expectation of a recession in the first half of the year, investors may be underestimating the risk posed by weaker corporate earnings and a Federal Reserve committed to crushing inflation. “The consensus could be right directionally but wrong in terms of magnitude,” Wilson said, warning that the benchmark could bottom around 3,000 points—about 22% below current levels.
Business Insider/Jennifer Sor
A closely watched indicator of a coming recession is blaring its loudest warning in over 40 years
The difference between the yield on the 2 and 10-year Treasury notes is the widest it’s been in about four decades, flashing a notorious warning of a looming recession and a possible sign of more pain to come for stocks, DataTrek said in a note on Monday.
The the 2-year yield has surpassed the yield on the 10-year note for almost a year now, and that inversion has only deepened recently. The 2-year was trading at a yield of 4.241% Monday, compared to a yield of 3.578% on the 10-year.
It’s the steepest inversion since the early 1980s, and potential grim omen for the economy, as an inverted yield curve has been a notoriously reliable indicator of a recession in the near-term.
You can read the full story, here.
Bloomberg via Yahoo Finance/Sagarika Jaisinghani
Morgan Stanley Warns US Stocks Risk 22% Slump
US equities face much sharper declines than many pessimists expect with the specter of recession likely to compound their biggest annual slump since the global financial crisis, according to Morgan Stanley strategists.
Michael Wilson — long one of the most vocal bears on US stocks — said in a research note that while investors are generally pessimistic about the outlook for economic growth, corporate profit estimates are still too high and the equity risk premium is at its lowest since the run-up to 2008. That suggests the S&P 500 could fall much lower than the 3,500 to 3,600 points the market is currently estimating in the event of a mild recession, he said.
“The consensus could be right directionally, but wrong in terms of magnitude,” Wilson said, warning that the benchmark could bottom around 3,000 points — about 22% below current levels.
Continue reading Craig’s full prediction, here.
Goldman to Axe 3,200 Workers
Goldman Sachs Group Inc. (GS) will cut about 3,200 positions starting this week, reversing course after four years of expansion, as a weak economy and slower dealmaking may have cut annual profit by half last year.
The cuts, amounting to about 7% of its total employees, are coming largely from its banking and trading divisions after the firm boosted its workforce by more than a third over the past four years to 49,000. Goldman mostly paused its yearly cull of underperforming employees earlier in the pandemic.
They also arrive just days before Goldman’s annual year-end bonus discussions. Compensation across the company is expected to fall as the bank works to reduce overall expenses. Firms across Wall Street have suffered along with declining asset prices and lower merger activity in the past year, and analysts say profit dropped by about half last year even as its trading units drove $48 billion of revenue.
You can read the full article here, here.