If you are anything else besides the yield curve today, the market doesn’t care. After inverting for the first time since 2007 earlier today, the spread between the yields on the 10-year and 3-month US Treasuries has sucked up all the oxygen in the room as investors, traders, and their algos fret over the ominous economic signal that an inverted yield curve historically implies. Who cares whether the onset of a recession usually comes several months or even a couple of years after the curve first inverts; investors are using this as an excuse to take profits, and take profits is what they’re doing.
Just to illustrate how captivating the yield curve has been to the equity market, check out an intraday chart of S&P 500 futures versus the yield curve since very early this morning. Moves in the yield curve are clearly leading equities. When the curve started flattening early this morning, equities started heading south with the pace of selling accelerating when the curve inverted. Then, as the curve made its intraday low right after noon, the low in equities followed less than 40 minutes later. It’s like the school playground, where the yield curve is the ‘cool kid’ and equities are the followers.