Putting the 2 year Treasury bond yield in context

The 2 year Treasury bond yield, T-bill and S&P 500 beg multiple interpretations

I called the 2 year Treasury bond yield the most important chart in the world the other day to poke fun at those who use such hyperbole to make a (likely biased) point, but  also to illustrating a likely topping situation in the 2 year yield. Below is the 2 year Treasury bond yield in context with the S&P 500 and the 3 month T-bill yield. In actuality, neither of these are likely the most important charts in the world but to nerds like me, it sure seems that way.

The 2 year Treasury bond yield post linked above included the daily chart view, which I think will roll over in H1, 2023 if not Q1. Here is the big picture monthly chart that we have been using in NFTRH among other indicators to plan for the Q4-Q1 rally (well along now, time-wise).

The cool thing is the different interpretations that one might make from this.

  1. the stock market got a head start on the bear phase that negative divergences by the 2 year yield to the T-bill yield (a good proxy for Fed policy) have indicated historically. The two previous bear markets noted on the chart began after a divergence began. This stock market bear began nearly a year before the yield divergence manifested.
  2. the stock market has already discounted the divergence with 2022’s bear market and with the Fed due to soften, happy days are here again!!!
  3. But wait, how about a combination of the two? Happy days are here again, but it’s temporary. If Fed relief continues to sweep the land (really, the world) we can get a good rally, possibly to highs that active or committed bears will be quite unhappy with. Then, after a proper divergence has matured and a majority think a new bull market is in play, well, a real bear market will begin that is something more virulent than the cyclical 2022 bear.

If you have nerd tendencies, spend a few moments reflecting on this situation. Macro charts are screwed up all around. That includes this one. It’s what’s going to make 2023 so exciting. It has the potential to light up the bears and bulls alike with time frames being the key. Personally, my view for the bull has been Q4-Q1 and then it will be evaluation time again, as it was early in Q4, 2022 when we began planning a bull phase.

2 year treasury bond yield, S&P 500 and 3 month T-bill yield

In NFTRH we are keeping tabs on money supply, yield curves, nominal bond yields and other indicators that were stretched to epic extremes in 2022. They are the guides. In my experience, most people manage the markets either by going bottom up (choosing stocks and then hoping the macro conditions are supportive), staring at nominal charts (they are fine for managing a particular equity or market as a trader) or chasing officially released and lagging data on inflation (CPI on deck), payrolls and whatnot.

But the battle is going to be won, says this nerd, by doing deep macro work beneath the surface. Automatic thinking will be punished in 2023. Indeed, that is my one 2023 prediction. Prepare to work unconventionally if for no other reason than convention got busted in 2022 and in 2023 it’s not nearly fixed. The above is just one macro view of that situation. There are others.

As for gold and gold stocks, I’ve done enough public work on them that you can refer to. NFTRH is not a gold stock pumping station. It’s a macro manager. But generally, 2023 looks very good with all due respect for the volatility to come.

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