 The Market Sum | Insight after the bell
By Caleb Silver, Editor in Chief Wednesday's Headlines 1. Markets Rise Despite Yield Curve Concerns 2. Energy Stocks Lead as Inventories Drop 3. Prepare for a Hard Brexit Markets Closed
 Markets Today
Hello Friends, It's good to be back. Feeling refreshed and ready. A huge thanks to our pal James Early for taking the wheel these past days. Great job, James and team!
U.S. markets bounced back from yesterday's baby drop, but there was no obvious catalyst for the rebound. Just more buyers than sellers today, and that's perfectly ok. We are approaching the Labor Day holiday here in the U.S. on Monday, which represents the last 'unofficial day of summer'. Normally, I would expect that to mean a few quiet days ahead, but nothing is normal anymore.
Energy stocks were the standouts in the U.S. today, as drillers like Diamondback and Cimarex reported strong quarterly results, even as oil inventories continue to fall, boosting prices.
Crude oil stockpiles fell by 10 million barrels, according to the U.S. Energy Dept., roughly in line with an 11.1 million-barrel drop reported by the American Petroleum Institute.
Remember - this was the plan. Oil prices were sagging at the end of 2018 and in the Spring of 2019 due to weak demand and fears of a global recession. Those fears haven't gone anywhere, but OPEC and other oil producers agreed to cut production to boost prices. Prices have stopped falling, but are still down 20% from a year ago.  Never Mind the Yield Curve We've spilled a lot of ink this year about the inverted yield curve and the declining yields for global treasury bonds. We think these are legitimate issues to write about given how correlated an inverted yield curve is to subsequent recessions.
To clarify, declining or inverted yields don't cause recessions. They are signals that a recession may be coming because they signify a lack of confidence in near-term economic growth. When investors steer away from risky growth assets like stocks, they often park in treasury bonds, which are considered safer since they are backed by governments and not companies. The higher the demand for Treasuries, the lower their yields.
In the U.S., yields continue to fall for both near and long-term Treasuries. Call it a 'flight to safety', if you like, since investors would rather own Treasuries or cash than stocks.
The yield on the 30-year U.S. Treasury hit another all-time low today, as investors keep buying the long end of the curve. That's the pattern of late.  Self Fulfilling Prophecy or Much ado About Nothing? The financial media (present company included) loves to write about the inverted yield curve. We can't help it, mostly because of its notorious track record. But, it does make one wonder... by writing about it, and talking about it on financial TV, are we, in fact, throwing fuel on the flame? By warning of a recession due to recent patterns in the Treasury market, does the financial media usher one in by sprinkling scary dust everywhere? Maybe.
Michael Batnick, head of research for Ritholtz Wealth Manager, blogger, and co-host of the Animal Spirits podcast, combed through the archives of the New York Times to see the number of inverted yield curve mentions over the past 45 years. While the NYT obsessed over it in 2000, it's nothing compared to the coverage it has gotten in the past year. Whoever said bonds are boring has not been reading the Times. The Red line is the frequency of mentions of 'inverted yield curve', while the black line is the yield on the U.S. Treasury.  Keep in mind that while the mentions of an inverted yield curve in the newspaper are spiking, the U.S. stock market is within 5% of its all-time highs. That doesn't mean a recession won't come... it just means that investors aren't so scared of one that they are giving up on stocks just yet.
Incidentally, the dividend yield on the S&P500 now exceeds the yields of both the U.S. 10 and 30-year Treasuries. That's a sign that investors still have an appetite for stocks - especially those with healthy dividends.  Source: femalefirst.uk.co
Prepare for a Hard Brexit British Prime Minister Boris Johnson has asked the Queen to suspend Parliament soon after MPs get back to work in September and until October 14, mere weeks before the October 31 Brexit deadline.
The Queen granted his request in what is known as prorogation.
Johnson, a Euroskeptic and Brexit proponent, requested prorogation, or ending of the current parliamentary session, because he believes in "getting on with our plans to take this country forward."
The pound slid over 1% against the U.S. Dollar in reaction to the news, but halved those losses by day's end.
Why it Matters? Johnson has made no secret of his plans to hit the deadline for Brexit on October 31st since he was elected Prime Minister several weeks ago. He does not have the support of a fractured Parliament by any measure, and his request to suspend it has been seen by many as a way to get disgruntled MPs from interfering with his plans. Only the ruling monarch can suspend Parliament, which is why Johnson chose to make the formal request of the Queen - even as she vacationed at her castle in Scotland.
This all but assures that we will see a "Hard Brexit", wherein the UK leaves the EU without a deal in place. While we don't know what will really happen if the UK pursues this path, here are some of the worse case scenarios:
Keep in mind - there are some of the worst case scenarios that we have collected from various reports and research papers. There is no telling how this will actually play out since we've never been down this road before. But it's better to know what could happen in a worst-case scenario than assume that everything will be fine.
chart courtesy www.koyfin.com  It was a good day to be a driller. Oil production and exploration companies rallied on good earnings from several companies, as well as news of lower inventories. That means higher prices ahead, which is why this sector gushed today.  Shares of software maker Autodesk slid 6.75% today as the company issued softer guidance for the remainder of the year, citing the trade war with China.   source: Getty Images
Word of the Day: What is prorogation?  Today in Market History Aug. 28, 2000: The New York Stock Exchange begins trading in decimals, ending the two-century-old practice of pricing stocks in increments of 1/8th of a dollar. In theory, investors will benefit from lower trading costs, but cynics worry that brokers will make more money than ever. The first to adopt decimal pricing: Anadarko Petroleum, FedEx, Forest City Enterprises, Gateway, Hughes Supply, and MSC Software.
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Wednesday, August 28, 2019
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