The yield curve just narrowed to its flattest level since before the financial crisis.
The difference between the 2-year and 10-year yield fell to 25 basis points on Thursday, the flattest level since August 2007, two months before the S&P 500 began a steep descent to crisis lows.
But any worries a flatter yield curve spells the end of this bull run are premature, says one market watcher.
“The yield curve is rather flat but a flat yield curve is not a message that the rally is over. An inverted yield curve is and we’re just not there yet,” Mark Tepper, president of Strategic Wealth Partners, told CNBC’s “Trading Nation” on Thursday.
An inverted yield curve occurs when shorter-term Treasurys such as 2-year bonds have a higher yield than longer-term Treasurys such as the 10-year note. It is typically seen as a leading indicator of trouble with the economy and stock market.
The yield curve has correctly predicted each of the past seven recessions since 1968, says Tepper. However, a long lead time means this nine-year bull market could have more room to run yet.
“As a stand-alone indicator, it’s typically just way early, way premature. It signals the onset of a recession by an average of about 12 months too early and six months before stocks peak,” added Tepper.
On average, stocks rise another 15 to 16 percent in the 18 months after the yield curve inverts, according to Credit Suisse.
Bill Baruch, president of Blue Line Futures, sees the yield curve getting flatter but does not expect it to stand in the way of more stock gains.
“I am not bearish the equity market. I think equities will make new highs,” Baruch said Thursday on “Trading Nation.” “The S&P very soon will set off a new all-time high, and I think November and December could be very strong months into January for the market.”
The S&P 500 and Dow last set record highs in late January. The S&P 500 is 1 percent from its all-time intraday high, while the Dow needs to add 1,085 points more to get back to its own.
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