Global economic indicators and momentum in stock prices are on the wane, but here is one good reason for holding onto your stocks or even rebalancing to add more: the near record positive slope in the yield curve.
As shown in the chart below, the difference between U.S. 3-month and 10-year bond yields remains highly positive, at just over 3 percentage points. Historically, such gaps are bullish for stocks. It’s usually only when the gap goes negative (short-term rates rise above long-term rates, as in 2006 and 2007), that bull markets end.
Chart 1: U.S. Yield Curve from 2006 to 2011
Source: Thomson Reuters Datastream via The Boeckh Investment Letter