The US markets are still my favorite. The inverted yield curve been a cause of worry.
Just looking at data and trying to create empirical relationships is pointless in social sciences. This idea has long been debunked. My favorite book on this is, “The Counter-Revolution of Science”. Yet empiricism is the dominate ideology in the field of economics. Go figure.
The important question is why does an inverted yield curve precede a recession. Money supply growth and credit are critical factors to watch. An inverted yield curve tends to upset these two factors. As of right now, there is zero indication that there is stress in the system. In fact, just the opposite. They both remain very strong. This does not mean a 20% or 30% correction in markets is not possible. It just means it will be a buying opportunity.
With the fed meeting next week, traders are expecting a 25 basis point cut.
The federal funds rate has become meaningless since 2009. But traders still watch it and it moves the market. More important is the IOER, which no one cares about. With pressure from the white house, the Federal Reserve looks like it is taking the funds rate back to zero.