Stocks hit new news after US President Donald Trump and Chinese President Xi Jinping agreed on a ceasefire. Unfortunately, the deal may have come too late to prevent the US from slipping.
Yes, the Dow Jones Industrial Average only traded on a new high. So did the S & P 500. But there were other data points on Monday that point the opposite. The ISM production index fell to 51.7 in June. Although it was not as low as feared or below the 50 level suggesting to slow down industrial activity, it was still the weakest reading since 2016. However, the forward-looking newcomer fell to 50.
Overall, this report is probably not enough to move the needle in either direction on Fed price reductions, according to a research firm report Capital Economics . "But with the global demand going to be worse, and the collective agreement agreed at the G20 summit is likely to be temporary, we expect US manufacturing activity to remain weak in the second half of this year."
Weak, obvious, is different than brake. Nevertheless, when the economy slows, there is a risk of setbacks, which is due to the difference between the return on the 10-year tax and the three-year bill has become negative. It is known as a yield curve inversion, and research has shown that if it lasts long enough, it is a reliable predictor of a recession. The Cleveland Fed Recession Model, which is based on that yield curve, predicts a 37.8% chance of a one-year decline.
A similar model from the New York Fed shows only a 29.6% chance, but it's not necessarily good news. Since 1960, a reading of over 30% has led to a recession, according to Lisa Shalett Chief Investment Officer at Morgan Stanley Wealth Management . "The result is the New York Fed The likelihood of setbacks in 12 months before, a model that uses leading indicators and economic variables that tend to move before economic changes, has reached the 30% threshold that has reliably predicted past economic downturns," she writes. "With the worsening of the June data, we believe that the model's next report will show that the economy continued to weaken."
Read more: Don't become too concerned about this trade war
The market does not seem so secure in itself. The large indices were up above 1% in early trading, but despite hitting new heights, Dow and S & P 500 returned some of these gains.
Let's just say that kind of weakness after such a strong opening is not the type of trade that builds confidence in further gains.
Write to Ben Levisohn at Ben.Levisohn@barrons.com