MARY REICHARD, HOST: Coming next on The World and Everything in It, the Monday Moneybeat.
NICK EICHER, HOST: The stock market last week set a slew of new records: The Standard & Poor’s 500 stock index is on its longest weekly winning streak in two years, five weeks in a row, and along with the Nasdaq, set new record highs in three of the five trading days last week. The Dow Jones Industrial Average set four new records, and all the indexes go into the new week on record highs.
The Dow is now more than 8-1/2 percent higher than it was back in August, after a frightening signal from the market for government bonds suggested a recession may be on the way.
About 30 years ago, economists identified a phenomenon known as a yield-curve inversion as a predictor of recession. The yield curve tracks the difference between yields on short-term government bonds and long-term government bonds. It’s normal for investors to demand a greater yield for longer-term debt.
But when they don’t, when they’re demanding greater yields for short-term debt than for long-term, in general that indicates a lack of confidence in the long-term strength of the economy. And in particular, a prolonged and steep yield-curve inversion has been a reliable predictor of recessions.
Back in late August and early September, the yield on 10-year Treasury bonds dropped below the yield for two-year bonds. Since the summer, though, economic optimism has increased—lower interest rates, very low unemployment, and belief that the trade war is near an end—and that has flipped the yield curve back to normal. The gap between the two- and 10-year Treasury is now at its healthiest level since July.
REICHARD: About the trade war: President Trump late last week contradicted a statement by a Chinese official that suggested Washington and Beijing had agreed on a roll back of U.S. tariffs.
This grew out of a preliminary agreement, so-called Phase 1, announced back on October 12th. Trump said he’s not yet agreed to a roll-back.
Still, he held out the likelihood of a deal-signing summit to be held in Iowa or elsewhere in U.S. farm country.
EICHER: Mortgage lender Freddie Mac reported the average rate on a 30-year home loan stands at 3.69 percent. That’s more than a full percentage point lower than a year ago, when the average rate was near 5 percent. The lower cost of borrowing has driven up existing home sales in September 4 percent year on year, and new home sales up 16 percent year on year. Lower mortgage interest saves home-buyers close to $200 a month on a loan principal of about $250,000.
And that is today’s Monday Moneybeat.