Market Outlook · November 04, 2020

Market Volatility: Referendum on Future Growth—Or Just a Correction?

1 From August of this year through today, the 2/10-year spread has widened by almost 30 basis points.

Historically, the spread between 2-year and 10-year Treasury bonds has been a relatively decent indicator of both impending recessions, as well as market turmoil—contracting in times of stress, and widening during times of economic expansion.

2 European credit spreads – even in the weaker markets – are still contained and have not widened out.

European investment-grade credit spreads have been incredulously benign.

3 Emerging markets stocks are still making relative highs vs. developed international stocks.

Emerging markets relative to US stocks continue to outperform. If growth either within the US or outside was truly in jeopardy, you would most likely see a reversal of this outperformance.

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