Yield Curve Inversion May Not Predict Recession, But Analyst Says Too Early To Declare 'All Clear' On Downturn
Portfolio Pulse from Piero Cingari
Merrill Lynch, a Bank of America company, has challenged the traditional wisdom surrounding the predictive power of the U.S. yield curve inversion for recessions. The inversion of the U.S. yield curve has been in effect since July 2022. However, the U.S. economy has defied expectations, weathering sharp Federal Reserve rate hikes with surprising resilience. Merrill warns of a significant risk of a potentially meaningful increase in unemployment over the next year. The firm is bullish on the Health Care Select Sector SPDR Fund (NYSE:XLV), bearish on the Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY), and favors overweights in the Utilities Select Sector SPDR Fund (NYSE:XLU) and the Energy Select Sector SPDR Fund (NYSE:XLE). It leans towards underweights in the Real Estate Select Sector SPDR Fund (NYSE:XLRE) and the Materials Select Sector SPDR Fund (NYSE:XLB).
October 04, 2023 | 8:47 pm
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NEGATIVE IMPACT
Merrill Lynch leans towards underweights in the Materials Select Sector SPDR Fund (NYSE:XLB).
Merrill Lynch's recommendation to underweight XLB suggests they expect the fund to underperform the market in the short term, which could drive its price down.
CONFIDENCE 90
IMPORTANCE 80
RELEVANCE 100
NEGATIVE IMPACT
Merrill Lynch leans towards underweights in the Real Estate Select Sector SPDR Fund (NYSE:XLRE).
Merrill Lynch's recommendation to underweight XLRE suggests they expect the fund to underperform the market in the short term, which could drive its price down.
CONFIDENCE 90
IMPORTANCE 80
RELEVANCE 100
NEGATIVE IMPACT
Merrill Lynch is bearish on the Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY).
Merrill Lynch's bearish stance on XLY suggests they expect the fund to underperform in the short term, which could drive its price down.
CONFIDENCE 90
IMPORTANCE 80
RELEVANCE 100
POSITIVE IMPACT
Merrill Lynch favors overweights in the Energy Select Sector SPDR Fund (NYSE:XLE).
Merrill Lynch's recommendation to overweight XLE suggests they expect the fund to outperform the market in the short term, which could drive its price up.
CONFIDENCE 90
IMPORTANCE 80
RELEVANCE 100
POSITIVE IMPACT
Merrill Lynch favors overweights in the Utilities Select Sector SPDR Fund (NYSE:XLU).
Merrill Lynch's recommendation to overweight XLU suggests they expect the fund to outperform the market in the short term, which could drive its price up.
CONFIDENCE 90
IMPORTANCE 80
RELEVANCE 100
POSITIVE IMPACT
Merrill Lynch is bullish on the Health Care Select Sector SPDR Fund (NYSE:XLV).
Merrill Lynch's bullish stance on XLV suggests they expect the fund to perform well in the short term, which could drive its price up.
CONFIDENCE 90
IMPORTANCE 80
RELEVANCE 100