Market Analysis: Yield Curve and Stock Market Downside Risks


The yield curve compares three-month, two-year, five-year, 10-year and 30-year US Treasury bonds. Under a normal curve, the longer the maturity, the higher the yield.

However, analysts at Crescat Capital point to an inversion in the current bond market —  yields on short-term bonds are clearly higher. This can be used as a harbinger of a sharp decline in the price of stock indices, as history shows: the inversion was observed before the crisis of 2008, during the dot-com bubble in 2000, and even during the sharp decline in the price of the S&P 500 during the pandemic in 2020.

At the same time, the danger may lie primarily for the technology stocks included in the Nasdaq 100, because this market feels the hype due to AI. So, during yesterday's trading, futures for technology stocks E-mini Nasdaq 100 fell much faster than the E-mini S&P 500.

The Nasdaq 100 chart is also showing alarming signals. The price of the index broke down the channel (shown in blue) of the uptrend, which has been operating on the market since May. So far, the bulls are feeling support from the 14,700 level, which served as resistance earlier this month. But the support could be short-lived and the market could become bearish, adding to the urgency of the yield curve warning.

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