By CCN Markets: Rising bond yields propelled the Dow Jones toward a spectacular advance on Monday, as the US stock market continued to claw itself out of the cavernous hole it dug for itself earlier in the month.
However, one so-called perma-bear claims that the market is still flashing a dangerous warning sign.
Dow Races Toward Fabulous Rally
All of Wall Street’s major indices secured mammoth gains at the opening bell. As of 9:39 am ET, The Dow Jones Industrial Average had gained 291.45 points, or 1.13%, to jump to 26,177.46.
The S&P 500 rallied 33.55 points, or 1.16%, to 2,922.23. Ten of 11 primary sectors recorded gains, with utilities dipping less than 0.1%.
The Nasdaq led the pack with a 1.5% surge to 8,014.13.
Bond Yields Spike, Sending the Dow Jones Higher
Stock prices rose in tandem with US Treasury bond yields, assuaging fears that the bond market was portending a recession.
The yield on the 30-year Treasury note jumped to 2.1%, just days after sliding below 2% for the first time ever. Bond yields rise as prices fall, indicating that investors are exiting these low-risk assets for more volatile investments.
The main yield curve – the difference between the yield on the 10-year and 2-year Treasury bonds – also widened to nearly 0.1% this morning.
The main yield curve briefly inverted last week for the first time since 2007, setting off recession alarms across Wall Street.
Rosenberg: Stock Market Is Waving a Major Red Flag
However, bond yields remain near historic lows, and not everyone is convinced that the market’s bearish forecast has changed.
David Rosenberg, the chief economist at Gluskin Sheff, warned that the overall market recovery masks several serious red flags.
Specifically, he noted that the S&P 500 sectors most sensitive to market cycles remain in “deep correction terrain. The energy sector, for instance, entered the day at 419.03, nearly 28% below its 52-week high.
“If you look deep enough, the equity market is sending the same weak-growth message the bond market is flashing. The cyclically-sensitive sectors of the SPX are back in deep correction terrain, down 18% from their highs.”
If you look deep enough, the equity market is sending the same weak-growth message the bond market is flashing. The cyclically-sensitive sectors of the SPX are back in deep correction terrain, down 18% from their highs.
— David Rosenberg (@EconguyRosie) August 19, 2019
This, Rosenberg suggested, indicates that the market is quietly bracing itself for stagnation in economic growth.