Steepening yield curve = improving economy and rising stock market

The yield curve as expressed by the spread between the 10 yr. Treasury rate and the Fed Funds rate just got steeper.  A steepening in the yield curve happens twice in an economic cycle.  It happens as the Fed is easing by reducing Fed Funds and they happen when the economy is improving and long rates begin to rise.  If one shuts out the noise of the financial press and focuses on the numbers, the current conditions are consistent with an improving economy leading to improving earnings which lead to rising stock prices.  The following charts show the evolution of the yield curve and then the percentage change in the NASDAQ following a change in the yield curve.  There is building similarity with the experience of the economy and the NASDAQ in 1995 and today.  And that’s my story and I am sticking to it.  Jeb B. Terry, Sr  July 5, 2013

yield curve and NASDAQ June 2013

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