One of the country’s largest engineering and construction companies, Fluor (FLR), has declined 40% from its highs just two months ago.  The company primarily offers engineering and construction services in oil, gas, industrial, and government projects including the development of power plants, petrochemical factories, mining facilities, and infrastructure.  Seeing as misery loves company, the declines in oil prices track fairly well to the company in which oil and gas related business account for as much as 40% of revenues.  With oil’s decline broadly being centered around an oversupply of the commodity, FLR’s business in oil and gas infrastructure understandably would be hurting.

Below is a price chart for FLR over the last ten years.  Declines today have caused a breakdown below 2017 lows that takes shares to their lowest level since April 2009 — just one month after the Financial Crisis low was made.

On Tuesday, the front end of the yield curve inverted as 3-year yields rose above 5-year yields. Other front end curves, by that measure, while not there yet, have also begun to dip to cycle lows.  The 10-year minus 3-month spread is at its lowest level since 2007.  Despite being at a low for the current cycle, the curve remains around 40 bps from inversion.

In the charts below we look at various yield curves over the past 15 years; this time frame allows us to see the curve’s movement leading up to the last recession.

Perhaps the most widely followed curve, the 10 year versus the 2-year spread, is also at levels it has not seen since 2007.  Although it is picking up slightly today as yields across the board fall, 2s10s is looking much more ominous at only 13 bps away from becoming inverted.  This will be the main curve that investors will keep their eyes on; expect to see it ad nauseam in headlines if it moves those 13 bps lower.

Shifting our focus to the longer end of the curve, spreads are off of lows from earlier in the year, but may not have quite bottomed just yet.  The 10-year versus the 5-year spread has recently fallen back down towards these lows.

Even longer maturities like the 30-year versus the 10-year have a higher spread still and has much more clearly made a bottom.  It is important to note, leading up to the previous recession this curve was not inverted for long.  Most of the bottoming occurred with a normal—albeit very flat—curve.

The ISM Non-Manufacturing report for the month of November showed that the services sector of the economy (the lion’s share) continues to hum along.  While economists were expecting the headline index to come in at a level of 59.0, the actual reading stayed above 60, hitting a level of 60.7.  What’s notable about this is that even though it is still off its highs from two months ago, the current string of back to back to back readings above 60 is the longest streak of 60+ readings since the survey began in 1997!  On a combined basis and accounting for each sector’s share in the overall economy, the combined ISM for the month of November was 60.6, which is also among the highest readings on record.

Breadth in this month’s report was somewhat mixed.  Of the index’s ten sub-components, six were up in November and four were down, but all of them are still well above 50 – the threshold for growth.  The key gainer on the month was Business Activity (top chart below table), which is back at its highest levels of the cycle, while one of the bigger disappointments to the downside was Employment, which has seen a bit of a reversal from its recent surge higher in the prior few months (lower chart).

This may be hard to believe after the past few days, but individual investors’ outlook on markets from the AAII survey actually saw a bump in bullish sentiment this week.  Bullish sentiment rose for the second week in a row to 37.94% from last week’s 33.88%.  This is off of one of the lowest readings of the year from only a few weeks ago.

As always, as bullish sentiment rose, bearish sentiment took a hit returning back towards the historical average.  Bearish sentiment fell to 30.5%.  This is well off the high of 47.14% hit a couple weeks ago.

Neutral sentiment also saw a decent bump this week rising to 31.55%.  Coming off of lows, this could indicate that investors are growing increasingly uncertain with how markets have performed recently.

As we mentioned last week, much of the more optimistic outlook from this week’s survey likely came as the result of Fed Chair Powell’s speech. Seeing as the survey polling closes Wednesday, this week’s results may not have fully taken into account Tuesday’s stock rout; just as last week’s survey likely did not take into account Powell’s speech. In other words, as the expected rise in bullish sentiment came this week, next week we should expect to see a rise in bearish sentiment especially if this price action keeps up.