Stocks: Volatile mix of factors drives off investors

“Maybe we’re not going to get as dovish a Fed as some think,” said Joseph LaVorgna, chief economist, Americas at Natixis in New York.

Investors also were focused on US Treasury yields, where the benchmark 10-year Treasury yield fell to its lowest point since mid-September.

The spread between the 10-year yield over its two-year counterpart also shrank to the smallest in over a decade, a closely watched signal because a so-called yield curve “inversion”, when the two-year yields more than the 10-year bond, preceded all the recessions of the past 50 years.

Part of the curve did invert, with two-year and three-year yields holding above the five-year yield for a second day.

“I think it’s the yield curve,” Jim Collins, founding partner, Portfolio Guru LLC, told China Daily when asked about Tuesday’s selloff. “As money started to move into the 10-year UST today, the 2-10 spread fell as low as 10 basis points.

“There’s very little wiggle room for the two-year at 2.80 percent, but in ‘flight-to-safety’ rallies, the 10-year yield will always decline. That puts a squeeze on bank profits, and financials were the worstperforming sector today.”

Earlier Tuesday, Collins raised this question on forbes.com: “Will Powell and co. risk a yield-curve inversion? I think the FOMC (Federal Open Market Committee) has painted itself into a corner and has to raise (interest rates) in mid-December.

“Powell’s dovish speech at the New York Economic Club ignited last week’s stock market rally, but if he and his colleagues don’t throw the market one more rate hike, participants will wonder if the FOMC knows something about the economy that they don’t.”