It’s our old friend the 2 year yield and its relationship to the S&P 500. The last time we checked in with this chart we noted that there was not yet a negative divergence between the 2yr yield and SPX.
We have also noted that there was such a divergence in warning of the 2008 crash to come off of SPX Hump #2, but no such divergence in 2000 as Hump #1 and the 2yr topped together. I proclaim loudly to you that the Fed responded to something akin to this chart when it recently wobbled on 2019 rate (and QT) policy.
In short, as per Chairman Powell’s words in Q4 a stock correction was not going to sway them. Nor was an unhinged president on Twitter. It was the 2 year yield that did it. As in 2000 the 2yr and SPX topped together and voila, the Fed flattens out its expectations.
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