Recession fears tied to Treasury yields are overblown, Canaccord’s Tony Dwyer suggests

Wall Street may be overestimating recession risks.

While investors focus on an unnerving inversion between the five-year and 30-year Treasury Note yields, Canaccord Genuity’s Tony Dwyer is concentrating on optimistic activity in another part of the bond market.

According to Dwyer, the three-month versus five-year yield shows a healthier picture of the U.S. economy because it steepened.

“It measures the difference between what a banker lending institution gets its money at, what they have to pay, versus what they charge or invested at,” the firm’s chief market strategist told CNBC’s “Fast Money” on Monday. “We don’t look for a recession because of that yield curve that’s driving the lending is still very positive.”

Dwyer acknowledges the overall bond market is reflecting economic challenges — but not enough to spark a recession.

“The fear is definitely there. Asia seems to be a mess with more lockdowns. Europe is heading toward a recession, if not in one because of the once in a generation ground war there,” he said. “The U.S. is being affected by higher rates. So, it certainly is slowing down.”

Dwyer expects the Federal Reserve to continue raising rates over the next few months.

“There’s no question inflation is high. Rates are going higher,” Dwyer said. “The Fed is in a box. No matter the slowdown, they’ve got to raise rates.”

He sees stocks as a hedge against inflation and plans to buy around weakness. Based on historical trends during similar backdrops, Dwyer believes the S&P 500 will be significantly higher this time next year.

But for now investors may want to brace themselves for wild market swings.

“We call it tumultuous”

“We call it tumultuous,” said Dwyer, who believes volatility is an opportunity.

He lists interest rate sensitive plays Big Tech and utilities as his best contrarian ideas. Dwyer predicts the slowing economy will provide some inflation relief in the year’s second half and put Fed rate hikes on pause.

“The market seems to be almost pricing in a recession trade because the areas that should do the best with higher rates have been lagging,” Dwyer said.

The S&P 500 closed at 4,575.52 on Monday and is off 4% so far this year.




Cramer’s lightning round: I like Nucor over ArcelorMittal

Enbridge Inc: “I like Enbridge. Wall Street doesn’t like it.”

ArcelorMittal SA: “It’s okay. Nucor’s better. Nucor’s a better company. I’m always going to go with Nucor because it’s best in breed.”

Disclosure: Cramer’s Charitable Trust owns shares of Wells Fargo and Nucor.



Will Smith apologizes to Chris Rock for slapping him at the Oscars

Will Smith slaps actor Chris Rock onstage during the 94th Oscars at the Dolby Theatre in Hollywood, California on March 27, 2022.

Robyn Beck | Afp | Getty Images

Will Smith took to social media on Monday to formally apologize to Chris Rock for slapping him during Sunday’s Academy Award ceremony, calling his behavior “unacceptable and inexcusable.” The incident took place prior to Smith accepting the award for best actor later in the evening.

“Jokes at my expense are part of the job, but a joke about Jada’s medical condition was too much for me to bear, and I reacted emotionally,” Smith wrote in a post on Instagram.

“I would like to publicly apologize to you, Chris. I was out of line and I was wrong.”

Smith took umbrage with a joke made by Rock about Smith’s wife Jada Pinkett Smith for her bald head. Pinkett-Smith has openly talked about having a hair loss condition. After Smith hit him, Rock said: “Will Smith just smacked the s— out of me.”

Smith repeatedly yelled at Rock to “Keep my wife’s name out of your f—– mouth.”

When he accepted his Oscar, he apologized to the Academy of Motion Picture Arts and Sciences as well as his fellow nominees. He didn’t mention Rock.

Here is Smith’s full statement:

Violence in all of its forms is poisonous and destructive. My behavior at last night’s Academy Awards was unacceptable and inexcusable. Jokes at my expense are a part of the job, but a joke about Jada’s medical condition was too much for me to bear and I reacted emotionally.

I would like to publicly apologize to you, Chris. I was out of line and I was wrong. I am embarrassed and my actions were not indicative of the man I want to be. There is no place for violence in a world of love and kindness.

I would also like to apologize to the Academy, the producers of the show, all the attendees and everyone watching around the world. I would like to apologize to the Williams Family and my King Richard Family. I deeply regret that my behavior has stained what has been an otherwise gorgeous journey for all of us.

I am a work in progress.

This is breaking news. Please check back for updates.



I’m not buying KB Home stock until KB Home does, says Jim Cramer

KB Home is currently a risky stock to buy despite its low price, evidenced by the company’s own disinterest in purchasing its stock, CNBC’s Jim Cramer said Monday.

“If KB starts buying back its stock aggressively, I’ll be right there with them. If they don’t, I’m staying on the sidelines,” the “Mad Money” host said. KB Home CEO Jeffrey Mezger said on the company’s first-quarter earnings call on March 23 that the company will “navigate based on our operating needs” when asked why KB Home isn’t purchasing its own stock.

KB Home’s earnings and top line missed Wall Street expectations in its first-quarter results, leading the stock to plummet from around $38 to about $33.

The homebuilding company’s stock inched up 0.42% on Monday after it dropped to a new 52-week low earlier in the day. Wolfe Research downgraded KB Home from outperform to peer perform in the morning.

While KB Home stock’s low price might be enticing to investors, Cramer said it is a red flag.

“The homebuilders are cyclical stocks that rise and fall with the broader economy. Cyclicals get this cheap when Wall Street’s worried about the earnings estimates,” he said.

Cramer also expressed concern about 30-year U.S. Treasury bonds yields, which have risen to their highest level since mid-2019. The yield changes are “the most important benchmark for mortgage rates and a hawkish Federal Reserve will only push it higher,” he said. 

The Federal Reserve is expected to take several interest rate hikes this year after approving a quarter-percentage-point interest rate in March, with some traders expecting more aggressive increases after Fed Chair Jay Powell vowed earlier this month to take a strong stance against soaring inflation.

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The bond market is flashing a warning sign a recession may be coming. Here’s why

A Trader on the floor of the NYSE

David Dee Delgado | Getty Images

The bond market is flashing a warning sign for the U.S. economy.

That harbinger is called an “inverted yield curve.” These inversions in the bond market have been reliable predictors of past recessions. Part of the yield curve inverted on Monday.

An economic downturn isn’t assured, though. Some economists think the warning is a false alarm.  

Here’s what to know.

What’s an inverted yield curve?

Why is it a warning sign?

An inversion in the yield curve doesn’t trigger a recession. Instead, it suggests bond investors are worried about the economy’s long-term prospects, Roth said.

Investors pay most attention to the spread between the two-year U.S. Treasury and the 10-year U.S. Treasury. That curve isn’t yet flashing a warning sign.

However, the five-year and 30-year U.S. Treasury yields inverted on Monday, the first time since 2006, before the Great Recession.

“It doesn’t mean a recession is coming,” Roth said of the inversions. “It just reflects concerns about the future economy.”

The two- and 10-year Treasury yield curves inverted before the last seven recessions since 1970, according to Roth.

However, data suggest a recession is unlikely to be imminent if one materializes. It took 17 months after the bond-market inversion for a downturn to start, on average. (Roth’s analysis treats the double-dip recession in the 1980s as one downturn.)

There was one false alarm, in 1998, she said. There was also an inversion right before the Covid-19 pandemic, but Roth said it can arguably also be considered a false alarm, since bond investors couldn’t have predicted that health crisis.

“It doesn’t work all of the time, but it has a high success rate for portending a future recession,” said Brian Luke, head of fixed income for the Americas at S&P Dow Jones Indices.

Interest rates and bonds

The Federal Reserve, the U.S. central bank, has a large bearing on bond yields.

Fed policy (namely, its benchmark interest rate) generally has a bigger direct impact on short-term bond yields relative to those of longer-term bonds, Luke said.

Long-term bonds don’t necessarily move in tandem with the Fed benchmark (called the federal funds rate). Instead, investors’ expectations of future Fed policy have more bearing on long-term bonds, Luke said.

The U.S. central bank raised its benchmark rate in March to cool down the economy and rein in inflation, which is at a 40-year high. It’s expected to do so many more times this year.

There’s nothing magical about a yield-curve inversion. It’s not a light switch that’s flipped.

Preston Caldwell

head of U.S. economics at Morningstar

That has helped push up yields on short-term bonds. Yields on long-term bonds have risen, too, but not by as big a margin.

The yield on the 10-year Treasury was about 0.13% higher than that of 2-year bonds as of Monday. The spread was much larger (0.8%) at the beginning of 2022.

Investors seem concerned about a so-called “hard landing,” according to market experts. This would happen if the Fed raises interest rates too aggressively to tame inflation and accidentally triggers a recession.

During downturns, the Fed cuts its benchmark interest rate to spur economic growth. (Cutting rates reduces borrowing costs for individuals and companies, while raising them has the opposite effect.)

So, an inverted yield curve suggests investors see a recession in the future and are therefore pricing in the expectation of a Fed rate cut in the longer term.

“It’s the bond market trying to understand the future path of interest rates,” said Preston Caldwell, head of U.S. economics at Morningstar.

Treasury bonds are considered a safe asset since the U.S. is unlikely to default on its debt. Investor flight to safety (and hence higher demand) for long-term bonds also serves to suppress their yield, Luke said.

Is recession likely?

A recession isn’t a foregone conclusion.

It’s possible the Federal Reserve will calibrate its interest-rate policy appropriately and achieve its goal of a “soft landing,” whereby it reduces inflation and doesn’t cause an economic contraction. The war in Ukraine has complicated the picture, fueling a surge in prices for commodities like oil and food.

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“There’s nothing magical about a yield-curve inversion,” said Caldwell, adding that it doesn’t mean the economy is going to shrink. “It’s not a light switch that’s flipped.”

Many economists have adjusted their economic forecasts, though. J.P. Morgan puts the odds of recession at roughly 30% to 35%, which is elevated from the historical average of about 15%, Roth said.



Jim Cramer says investors should use these rules to build a turbulence-proof portfolio

Investors should follow a certain set of rules when building their portfolios to weather the market volatility that Monday’s rally suggests could happen, Jim Cramer said.

“When you see new, unseasoned merchandise exploding higher, along with names like Tesla surging on … a stock split, it tells you there might be a little too much excitement, a little too much froth, for the entire market. One or two of these runs would be fine, but when you see all of the speculative assets roaring in an overbought market,” prepare for some turmoil, the “Mad Money” host said.

Tesla is looking to split its stock to pay dividends back to shareholders, according to a filing Monday. The news led to Tesla stocks rising 8%, leading a tech rally for the day that included names like Microsoft and Amazon.

The Dow Jones Industrial Average gained 0.27%, while the S&P 500 rose 0.7%. The Nasdaq Composite increased 1.3%.

The Cboe volatility index, Wall Street’s fear gauge, closed below 20 for the first time since mid-January.

On the heels of the market gains, Cramer listed rules investors should consider to successfully weather potential market turbulence down the line. Here are his suggestions:

  • The most important rule is to own an oil stock, since fuel prices are increasing. “My favorites are Chevron for a steady dividend. It’s pulled back too, and Devon [Energy] also pulled back, which pioneered a new way to reward shareholders,” Cramer said.
  • Choose some low price-to-earnings multiple stocks. Cramer said Google-parent Alphabet and Facebook-parent Meta, both at “historically cheap valuations,” are good options that can withstand soaring inflation.
  • Consider a health care stock that can do well even if the Federal Reserve‘s interest rate hikes slow the economy down. “My favorite remains Eli Lilly,” Cramer said.
  • Own stock of a consistent retailer that can keep ahead of inflation. Cramer recommended Costco and said to avoid Dave & Buster’s.
  • Own one or two speculative stocks, but be careful. “I think it’s a great way to stay interested in the stock market. … But if you’re going to speculate, you have to be prepared for the possibility that these stocks could go to zero. Never buy something like AMC or GameStop with money you can’t afford to lose,” Cramer said.

Disclosure: Cramer’s Charitable Trust owns shares of Amazon, Microsoft, Alphabet, Meta, Chevron, Devon, Eli Lilly and Costco.



Stock futures are flat ahead of consumer confidence data

Stock futures were flat in overnight trading ahead of Tuesday’s consumer confidence data and a big week for economic data.

Futures on the Dow Jones Industrial Average dipped 20 points or 0.06%. S&P 500 futures were flat, while Nasdaq 100 futures inched 0.1% lower.

During Monday’s regular trading session, the Dow Jones Industrial Average rose 94.65 points or 0.27%. The S&P 500 climbed 0.7%, while the Nasdaq Composite gained 1.31%.

The gains came amid a tech-heavy market rally during regular trading led by shares of Tesla, which rose 8% on news that it will ask shareholders to split its stock to pay dividends to investors.

“I think anyone has to be impressed with the resiliency of the market and I go back to there is no alternative,” Erin Browne, PIMCO’s managing director and portfolio manager, told CNBC’s “Closing Bell: Overtime” on Monday. “Do you want to invest in bonds when you know that the Fed is raising rates or do you want to invest in equities where you can get some type of dividend return, you can get real earnings growth and it’s gonna give you a comfortable return in your portfolios?”

Meanwhile, the 5-year Treasury note rose above the 30-year on Monday, marking the first inversion since 2006. The shift stoked some recession fears, although economists typically watch the spread between the 2-year and 10-year rate, which remains positive.

Oil prices, which have fluctuated in recent weeks amid the ongoing geopolitical tensions abroad, fell on Monday. Both U.S. West Texas Intermediate (WTI) crude futures and Brent crude futures slid about 7%, settling at $105.96 and $112.48 per barrel, respectively. The slide led energy stocks such as Chevron to tumble.

Market watchers continue to monitor the ongoing war between Russia and Ukraine as peace talks are set to continue in Turkey. Meanwhile, investors are also watching the Fed, as more Wall Street banks pencil in half-point increases after chair Jerome Powell indicated that more aggressive hikes are possible.

Investors are awaiting consumer confidence and home price data to be released Tuesday, ahead of Friday’s monthly jobs report. Economists expect to see 460,000 jobs added in March and the unemployment rate to fall to 3.7%, according to Dow Jones estimates.

Lululemon Athletica and RH will also report earnings after the bell on Tuesday.



FedEx names Raj Subramaniam as CEO, replacing founder Fred Smith

FedEx Express President and CEO Raj Subramaniam during the final round of the World Golf Championships – FedEx St. Jude Invitational on July 28, 2019 in Memphis, Tennessee.

Michael Wade | Icon Sportswire | Getty Images

FedEx Corp. said Monday that Fred Smith will step down on June 1 as CEO of the package-delivery company that he founded and be succeeded by the company’s president and chief operating officer.

Raj Subramaniam will serve as both CEO and president and Smith will become executive chairman, the package-delivery company said.

Smith started FedEx in 1971, delivering small parcels and documents more quickly than the post office could. Over the next half-century, he oversaw the growth of a company that combined air and ground service and became something of an economic bellwether because of its service to other companies.

“FedEx has changed the world by connecting people and possibilities for the last 50 years,” Smith said in a statement that also praised Subramaniam’s ability to guide the company. Smith said he will focus on global issues including sustainability, innovation, and public policy.

Subramaniam joined the Memphis, Tennessee-based company in 1991 and served in several marketing and management jobs in Asia and the United States. He rose to become the chief marketing and communications officer, and also served as the top executive of FedEx Express. He joined the FedEx board in 2020 and will remain a director.



SEC seeks to broaden definition of dealer to ease liquidity worries

U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler testifies before a Senate Banking, Housing, and Urban Affairs Committee oversight hearing on the SEC on Capitol Hill in Washington, U.S., September 14, 2021.

Evelyn Hockstein | Reuters

The Securities and Exchange Commission on Monday proposed two rules that would force more trading firms to register as dealers and open their books to far greater regulatory oversight.

The move, applauded by SEC Chair Gary Gensler, would require many firms that execute algorithm-based, high-frequency trades to come under the regulator’s scrutiny as it looks to ensure liquidity across U.S. financial markets.

“I was pleased to support this proposal because I believe it reflects Congress’s statutory intent that firms engaging in important liquidity-providing roles in the securities markets, including in the U.S. Treasury market, be registered with the Commission,” Gensler said in a statement.

The SEC’s new rules would require firms or persons to register as a dealer if they regularly make comparable purchases and sales of the same securities in the same day or turn profits primarily through bid-ask spreads.

Those who have at least $25 billion of trading volume in U.S. debt in at least four of the prior six months would also be compelled to register. People or firms that manage less than $50 million would not be subject to the new rules.

“This is the SEC’s effort to deal with the shadow dealer system,” said Ed Yardeni, president at Yardeni Research. “They’ve basically said — thanks to high-frequency trading, algorithms and so on — that there are firms out there that basically have taken on the role of being dealers in the sense that they transact an enormous amount of buying and selling on any specific day.”

In the past, firms that offered to buy and sell securities were not large enough — did not transact enough volume — to affect broader market liquidity. One firm’s trades, even if they involved thousands of U.S. bonds or corporate shares, simply were not large enough to be considered systemically important.

But now, as a handful of these so-called principal trading firms now control most of the volume on interdealer broker platforms in the Treasury markets, the SEC is worried that computer-based traders now act as a significant source of market liquidity.

Russell Sacks, a partner at law firm King & Spalding, said he thinks the real consequence of the rules would be in mandating that large private funds to register as dealers.

“What they’re saying is, if you are a large enough private fund such that you provide liquidity to other market participants on a regular basis, you should register as a dealer,” Sacks said Monday afternoon. “The entities that are in the crosshairs here are the pools of money run by what we’d refer to as hedge fund managers and pension funds.”

Sacks, whose clients include broker-dealers, added that he’s skeptical that the SEC would gain enough insight into market liquidity through the rules to warrant imposing such steep costs on large private funds.

“All of these entities already use prime broker-dealers to make their trades, and those entities are already subject” to the SEC’s rules, he added.

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Since market liquidity, the ease with which assets can move throughout the economy, is critical to price stability and financial plumbing, the SEC has in the past asked firms that serve that function to register as “dealers.”

“Requiring all firms that regularly make markets, or otherwise perform important liquidity-providing roles, to register as dealers or government securities dealers also could help level the playing field among firms and enhance the resiliency of our markets,” SEC Chair Gensler added.

When investors worry about the liquidity of Treasury debt, or cash drying up, it can lead to huge and potentially dangerous price swings. The SEC on Monday alluded to such “tremors” in the markets for U.S. debt in 2014, 2019 and at the beginning of the Covid-19 crisis.

Liquidity concerns forced the Federal Reserve to step into financial markets in the spring of 2020 to meet banks’ fierce demand for central bank cash in exchange for Treasury debt, a global backbone that serves as a conduit for everything from hedged trades to monetary policy.

“The Treasury market is widely viewed as the gold standard of the credit markets,” Yardeni added. “We want to make sure that that market, in particular, stays liquid and continues to function.”

“You don’t want to call somebody that you’re trying to do a transaction with and find out that they’re not answering their phone,” he added. “And you don’t want to put in an order and find that it hasn’t been executed or it gets executed at a price bizarrely different than what you anticipated.”



Biden says his ‘moral outrage’ at Putin does not signal a U.S. policy shift

U.S. President Joe Biden announces his budget proposal for fiscal year 2023, as Office of Management and Budget (OMB) Director Shalanda Young listens in the State Dining Room at the White House in Washington, U.S., March 28, 2022.

Kevin Lamarque | Reuters

President Joe Biden on Monday clarified that his statement that Russian President Vladimir Putin “cannot remain in power” made over the weekend doesn’t reflect a policy shift by the United States.

Biden spoke at the White House two days after he shocked the world and his closest aides on Saturday when he ad-libbed the line during a major speech in Poland. What followed was a flurry of headlines saying Biden was calling for a regime change in Russia.

Despite the uproar, Biden stood by his original statement. “I’m not walking anything back,” he told reporters at a speech that was originally going to focus on the budget.

“I was expressing the moral outrage I felt” after having visited with Ukrainian refugees.

“I was not then, nor am I now, articulating a policy change,” Biden added.

Putin “shouldn’t remain in power, just like, you know, bad people shouldn’t continue to do bad things,” he continued. “That doesn’t mean we have a fundamental policy to do anything to take Putin down in any way.”

Biden stressed that he was attempting to speak directly to the Russian people, to say to them, “this kind of behavior is totally unacceptable, and the way to deal with it is to strengthen and keep NATO completely united.”

Biden’s explanation will likely help to smooth ruffled feathers among European leaders, several of whom complained that Biden’s remark risked escalating a broader war between Putin and the West.

Biden had previously hurled invectives at Putin throughout the crisis in Ukraine, labeling him a “murderous dictator” and a “war criminal.”

But until Saturday, the president had stopped short of calling for Putin’s removal from power.

“A dictator, bent on rebuilding an empire, will never erase the people’s love for liberty,” Biden said at the end of a sweeping speech in Poland. “Ukraine will never be a victory for Russia, for free people refuse to live in a world of hopelessness and darkness.”

“For God’s sake, this man cannot remain in power,” Biden said.

As the potential significance of Biden’s remark gained steam on Sunday, both the White House and the president’s top diplomat tried to walk it back.

Secretary of State Antony Blinken insisted that the U.S. government does not envision a regime change in Russia, and that Biden simply meant that Putin cannot be allowed to continue to wage war in Europe.

“As you have heard us say repeatedly, we do not have a strategy of regime change in Russia — or anywhere else, for that matter,” Blinken told reporters during a trip to Israel.