Bond yields remain surprisingly low, yet the yield on the 10-year Treasury crossed the 3 percent mark earlier this year and peaked at 3.11 percent on 17 May.3 The spread between the 2-year and 10-year Treasury yield narrowed from 52 basis points to 35 by the end of last week.3 We expect both modest flattening of the yield curve and unevenly rising yields to continue.

Prediction 5

Stocks enjoy longest bull market in history but experience a 5+ percent correction after the longest period without one.

The second half of this prediction already happened in February when stocks experienced their first significant correction since 2016.3 Should equity markets make it to August 22 this year without the bull market ending, the first half of this prediction will come true as well.4

Prediction 6

U.S. equity returns lag earnings growth for the first time in six years, the longest streak in decades.

So far, this prediction is probably our “most correct” of the year, since earnings growth has been amazingly strong while stock prices have advanced only modestly. Estimated 2018 earnings-per-share growth for S&P 500 companies stands at 20.1 percent year over year, while the S&P 500 Index has returned 4.0 percent.3 It would take a massive collapse in earnings and/or a sharp jump in prices for this prediction to move into the “wrong” column.

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