Growth Scare Affects Bond Market

LPL Research’s Chief Economist, Dr. Jeffrey Roach, discusses the surprise in consumer confidence, the potential for a third year of the bull market, and improving business loan demand.

Last Edited by: LPL Research

Last Updated: February 27, 2025

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Jeffrey Roach (00:03):

Hi, I'm Jeffrey Roach, Chief Economist for LPL Financial, with three key charts to explain the current macro landscape. So first, yields drop on a growth scare. Treasury yields declined recently as investors got nervous about growth with the 10-year yield temporarily dipping below 4.3%. Now the catalyst for the growth scare was the decline in February consumer confidence, but it's a mixed bag here. Consumer's views on the current situation are rosy, although still below pre pandemic levels. A less rosy outlook was from the expectations component, which fell for the third consecutive month, pulling down the headline number I'm showing here. A dip in confidence brought about a dip in yields. Second, business loan demand improved according to the latest Fed survey from the senior loan officers. Lending standards eased, and commercial and industrial loan demand improved as you see in this chart, which means business spending appears to be on the cusp of improving this year.

Jeffrey Roach (01:06):

Now, if the downshift in economic growth is meaningful, the markets could be right about two rate cuts this year, but only if the inflation backdrop improves. No doubt, easing inflationary conditions would be a positive catalyst for markets. Third year, three tends to be positive. When we talk about how long a bull market can run, it's important to remember that historically bull markets tend to celebrate a third birthday. Now, of course, you see in this chart that the third year of the bull is not as robust as the first two years. And more importantly, since 1947, the bull markets that entered a third year also had a decline of 5% or more in that year. So a couple of things have to align if 2025 will be positive. Things like inflation outlook improves, economic growth continues, and productivity growth persists, maybe with the help of artificial intelligence. Now that's all for now. If you want more insights on global market trends, follow us on social media and take care.

 

LPL Research’s Chief Economist, Dr. Jeffrey Roach, discusses the surprise in consumer confidence, the potential for a third year of the bull market, and improving business loan demand.

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