You may have read about the Iranian attack on Friday morning that caused stocks to fall and oil to rise. But the real battle has been between 10YR Treasury bond yields and the S&P 500. In the chart below, you normally want to see the two trend together – as stocks rise, so do interest rates as the assumption is that the economy is growing. But that relationship is not working right now, so let’s take a closer look at the chart.

The blue line in the chart represents the yield on the 10Yr, you can see that interest rates peaked at the September 2018 top coinciding with the S&P and that is when the two began to diverge. As stocks have marched higher since the December 2018 low, Treasury bond yields have been steadily falling. This divergence indicates that turbulence is in the 2020 forecast for the financial markets.

S&P 500 Index (SPX) vs 10Yr Yields (TNX)

The bottom of the chart also shows a momentum indicator called a Stochastic that can identify turning points in stock prices. I have highlighted most of these turning pints with a vertical red line to show how prices reacted once this indicator began to turn down from overbought levels. The best parallel is the period leading up to the 2018 top. The stochastic indicator was pinned at overbought levels for some time until prices broke support and abruptly turned lower.

The two indices will eventually converge in the same direction. Did we see a turning point on Friday? Too early to tell for sure as we need to understand better if the military action this week shifted some of the global macro risks regarding politics, oil prices and trade tensions. But the technicals indicate that stocks need to take a break at the very least. For now, the S&P has won the battle but not the war.

Chart of the Week!

Economic & Central Banking Snippets 

  • The US manufacturing sector contracted in December at its quickest pace since the financial crisis, undershooting Wall Street forecasts for a slight improvement in conditions. The Institute for Supply Management said on Friday morning its purchasing managers’ index fell to 47.2 in the final month of 2019, from 48.1 in November. That was its lowest reading since June 2009. Most economists would say that recessions begin when this number gets to 46.
  • China’s central bank provided liquidity by reducing the cash reserves banks need to maintain by 0.5%. This releases around $115 billion in funds for lending. The People’s Bank of China (PBC) said the change is to support the development of the real economy and lower real financing costs. (Investopedia)

Macro Snippets

  • Tesla‘s Shanghai Gigafactory is producing at least 28 cars every hour and over 1,000 cars every week, according to production director Song Gang. He told the state-run Global Times the plant will rollout 3,000 cars each week in the near future. The report also added that Tesla sold about 30,000 Model 3s this year in China.
  • Airbus has passed Boeing to become the world’s biggest plane maker for the first time since 2011. It delivered 863 aircrafts in 2019, which is a 7.9 % increase from 2018. Boeing delivered 806 aircrafts in 2018, but delivered only 345 aircrafts in the first 11 months of 2019. (Investopedia)
  • Disney+ will have over 25 million subscribers by the end of the first quarter, according to a survey by Rosenblatt Securities. The company has not released any official numbers lately, but 10 million people signed up on the day of the launch of the service. Disney expects to have 60 million to 90 million subscribers globally by the end of FY2024, a guidance Bank of America recently called “conservative.” (Investopedia)

That is all for now and thank you for being a subscriber.


Paul J. McCarthy, III

President – Kisco Capital

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.