The yield curve (10-year Treasury yield minus 2-year Treasury yield) has fallen to its lowest point since 1981 last week, leading to questions about how much lower the spread could fall. Depending on Fed Chair Jay Powell’s action (or inaction) on interest rates, Hedgeye CEO Keith McCullough says the 10s minus 2s could drop well below -100 basis points.
“Going into next week, we could easily see this stock market and everything else completely collapse,” McCullough explains in The Macro Show. “If they’re actually setting up for Powell to do nothing and start cutting interest rates, and he does the opposite, I just told you what the shape the curve could look like almost instantaneously.”
Rather than following the masses and buying or selling based on Powell’s whims, McCullough says to take a longer-term approach and stick to your principles.
“That’s the beauty of the model, is that it gets you into positions that you don’t even know why you’ve made a good asset allocation decision,” McCullough says. “Keep your core asset allocations on the premise that you have and your process, not other people’s talking points.”
Watch the full clip above.