The nominal spread between the 10-year bond yield and short-term interest rates -- the so-called "yield-curve spread" -- has been closing since 2014 and is now at a 10-year low. Many believe this signals a U.S. economy headed for recession. But other leading indicators do not point to a sharp slowdown. For example, the nominal spread fails to take inflation into account. On this measure, the real, inflation-adjusted level of bond yields remains historically low versus five-year inflation, and the real level of short-term rates is finally above zero, but only by 40 basis points. We think that Leading Economic Indicators are better predictors than the yield curve. One-year growth for the LEIs is a very robust 5%.
Forex and stock traders are looking for the consistently wrong investor, trader and take the opposite position. This will obviously lead to winning trades for them. All traders have read trading books that point out that increasing volume is good for the continuation of the trend. Many new stock traders will try and fight the trend.
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