You may have noticed that in the last few weeks talking to a lot of different players in the market, there seems to be a broad consensus that 2022 is going to be a little bit more challenging than 2021, which at best can almost be surprising and many people are also asking.
Whether the stock will not rise by 20 to 25 percent this year, defying the slowdown, there is also hope again. But things are a little different this time compared to a year ago. For starters, the Federal Reserve is in the process of reversing its over-lax monetary policy.
Did you know that it’s not moving pretty much fast enough compared to inflation, but it’s doing it a little differently in an environment where all of these markets have a little bit of a bias towards the prospect of higher interest rates? So of course there are sensitives, because of the very high leverage in the system and the varying amounts of government funding that could be in the form of debt well done over the years.
The Fed has yet to raise rates as expected, and it is expected not to happen until March, but the yield curve has already flattened completely, suggesting that the yield curve is already a little too thin, about 80 basis points.
That we’re getting close to a recession. Many people have gone through a few completely flattening cycles of the yield curve and with each one comes dumb analysis. The first is the mechanics behind the measurement.
The convention is to use a variety of differences in yield between two and nearly 10-year U.S. Treasury notes, but some vexed purists always come out with that particular kind of woodworking and say that you don’t have to.
It is best to use Treasury bill rates for three or about six months in the U.S. Better yields of two to three years usually take longer to reverse the curve when all those bills are used as the benchmark,
About which people get the hope that any kind of recession in the future is more than they think. Second, there is speculation that there is little time difference for any stock price increase, and perhaps that such a notably flattening or even an inversion of the yield curve would not lead to a recession.
But the yield curve is their undisputed heavyweight champion based on market indicators – their reversal is always preceded by a recession. Let us tell you for your information that it is only a matter of timing. If the Fed remains well on its current path – or accelerates itself – the yield curve will likely reverse sometime around early 2022, at the same time that the real rate A slight increase is expected.