Over the past 60 years and through seven economic cycles, we have found that only a shutdown of credit availability has the power to generate a recession, which only takes place well after an inversion of the yield curve. While everyone is talking about this, the yield curve isn’t a sentiment indicator, it is a money availability indicator. Traditional and non-traditional banks alike lend money to make money, so why would a lender of any type lend money at a lower rate than it pays? As a result, while it “feels” like there is something wrong with our positive fundamental thesis given the decline in the economically sensitive areas of the market, similar to the other corrections throughout the 9.5-year bull market, we view the weakness as temporary until there are clear signs of a shut down in credit.
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