S&P 500 Index (SPX) hits record highs

S&P 500 Index (SPX) hits another record highs this week, a move that was accompanied by the Dow Jones Industrials (DJI) and the Nasdaq Composite Index (IXIC).

The S&P 500 Index gained 22.8 points to close within striking distance of the round number level at 3,000.

While new price highs are common, what is unusual this time is that Treasury bonds are too hitting long-term price highs. The rise in expectations of rate cuts in the summer is luring in momentum bets of a further rally.

The iShares Treasury Bond ETF (TLT) rallied to new multi-year highs this week (see below).

A Summer of Rate Cuts?

The fact that bonds are rising suggests that the real economy could be heading into real trouble. In the US and UK, the yield curve is flat or inverted. This means the longer-term maturity bond yields are lower than the policy rates.

Normally, when the yield curve is inverted the economic is heading for an economic slowdown. The Reserve Bank of Australia (RBA) already started the monetary race by cutting its policy rate to a record low of 1.0% this week.

In the UK, the Bank of England could be looking at a rate cut too (see first graphic from this post).

Across the Atlantic, President Trump has nominated Christopher Waller and Judy Shelton to the Board of Governors of the Federal Reserve System. If successful, they could help to make the case for a more accommodative monetary policy.

US Markets will be closed on July 4.

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