Another Yield Curve Inversion, More Coronavirus Fallout, and an Update on Manufacturing

Much was made of 2019’s yield curve inversions and the signal’s penchant for predicting recessions, but a relatively strong Q3 earnings season and continued dominance from the S&P 500 helped offset a lot of investor anxiety. However, the emergence and spread of the coronavirus has sparked a flight to safety, sending yields sharply lower and causing the yield curve to revisit its 2019 patterns. Is this all an overreaction to dire headlines, or something more ominous? And yields aren’t the only measure suffering under the weight of the new pandemic; commodities have also plummeted as activity in China has ground to a halt in what is typically one of the nation’s busiest shopping and travel periods. And while the situation is reminiscent of the SARS outbreak—which may indicate that we’re in for a long haul before the spread is contained—the economic consequences may not be as bad as feared. After all, the S&P rose over 10% from the beginning of the SARS outbreak to its containment in 2003. Finally, we’re continuing to see some hopeful signs on U.S. manufacturing, but we’re hoping our politicians don’t take it as a blank check; the deficit is getting more than a little top heavy…