Global events paused the rise in longer-term interest rates. Whenever there is uncertainty, we experience a flight to safety. This pulled the 10-year Treasury Note yield back to under 4.8%. We saw the same flight to safety when Silicon Valley Bank failed. That reprieve in the steady rise in rates proved to be temporary. It has this time too. The rate crossed 5% today.
We are now moving into earnings season, and I expect the economy to be stronger than anticipated. The recent quarterly survey of economists by The Wall Street Journal shows that economists have reduced their expectations of a recession over the next twelve months to less than 50%. I hope that they are right. These economic prognostications are little more than sentiment surveys and are terrible at predicting the future. I shall discuss this in the next newsletter. I am skeptical of “this time is different” narratives. Economists are human too.
For now, concerns about the stability of things “over there” are likely to support the premium that investors have become accustomed to paying for domestic stocks. We shall continue to maintain diversified portfolios focused on credit quality and short durations on the bond side. We see opportunities in bonds as having been temporarily delayed, but not derailed.
* Torry, H. DeBarros, A. "A Recession Is No Longer the Consensus" The Wall Street Journal. Online, 10.15.2023. https://www.wsj.com/economy/a-recession-is-no-longer-the-consensus-3ad0c3a3?mod=economy_lead_pos1. Accessed on 10.18.2023.