Daily Market Color January 3, 2019Rates Fall Sharply as Concerns About Global Growth Rise Treasury Yield Curve Now Forecasting Fed Policy Mistake in 2019 With a significant kink at the 1 year mark, the US Treasury curve is now pricing in a policy mistake by the Federal Reserve. The market’s expectations for interest rates at the end of 2019 sit nearly 70 basis points below the Fed’s own projections. Federal Funds futures now pricing in a 55% likelihood of a cut in 2019. Investors will be paying close attention to tomorrow’s jobs report- a strong number could mean a sell-off in Treasurys, while a weak number would support the narrative that the Fed will be forced into cutting rates by the end of this year. Apple’s Revised Guidance Prompts Sparks Further Volatility in Equities Apple’s revision of their Q1 guidance prompted a worldwide sell-off as investors took Apple’s weak holiday sales as a sign of slowing global growth. Stocks weren’t helped by yet another batch of weak manufacturing data- the US’s ISM Manufacturing numbers coming in at 54.1, well below the 57.5 forecasted. The VIX, a popular measure of US equity volatility rose slightly to 25.45- well below the panicky level of 35 it hit on Christmas Eve. Recent Sell-Off In Historical Context Market volatility often comes with sweeping predictions for a recession, but market performance is a poor predictor of an economic contraction. Since 1975, the market has entered a bear market ahead of a recession once. Volatility is also a poor leading indicator of recession, and while it may seem elevated, we may just be seeing a return to average levels after years of depressed volatility.