The S&P 500 Index has closed lower four consecutive weeks, its longest weekly losing streak since October 2014. The S&P 500 has closed down five weeks in a row only once since the bull market started in March 2009—a six-week losing streak in 2011.
“Streaks are made to be broken, and this weekly losing streak could end soon if history is a guide. If James Holzhauer can lose on Jeopardy, anything is possible,” explained LPL Senior Market Strategist Ryan Detrick.
Long weekly losing streaks like the current one are rare, as our LPL Chart of the Day shows, and they’ve typically led to a near-term rebound. The S&P 500 was higher a month later four out of five times, and 6.7% higher on average after four-week losing streaks since the beginning of the bull market.
One of the Longest Weekly Losing Streaks in Years
We’ve seen several interpretations of Treasuries’ cautious undertones recently—one of them being the idea that bonds could be forecasting economic weakness that other financial markets are missing.
“One of our biggest challenges this year has been explaining a bond market that’s become increasingly pessimistic on the economic outlook,” said LPL Research Chief Investment Strategist John Lynch. “In any case, we encourage investors not to get too caught up in Treasuries’ cautious signaling. We see plenty of evidence that solid U.S. fundamentals remain intact, and we don’t think yields’ recent decline is simply an indictment of future economic growth.”
To be fair, there is evidence of weakness in economic data. Data on durable goods orders, industrial production, and manufacturing activity continue to trend lower. However, the bulk of economic fundamentals don’t support a 10-year yield nearing 2%. Output growth hasn’t slowed noticeable, wage growth is healthy, and the U.S. labor market is close to full employment.
We also haven’t seen signs of stress in other fixed income indicators. The spread between the 2-year and 10-year yields remains squarely in positive territory, and corporate debt spreads have been relatively contained. We’d expect to see more deterioration across credit markets if a recession were imminent.
We think the most plausible explanation for the decline is that intensifying trade and political risks have ignited a wave of panic buying in U.S. debt, a trend we expect to reverse as trade risk subsides. However, a protracted trade dispute could further weigh on growth, so we’ll continue monitoring economic data for vulnerabilities.
For more of our thoughts on the recent decline in yields, check out this week’s Weekly Economic Commentary and Weekly Market Commentary.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
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This Research material was prepared by LPL Financial, LLC.
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