Wall Street’s go-to recession indicator is starting to get attention
Investors were particularly worried, however, about the yield on shorter-term US bonds like the two-year note, which has been rising even more dramatically. It’s now above 1.5%, gaining about 110% so far in 2022.
Why this matters: Typically, investors demand higher payouts for longer-dated bonds, since it’s harder to predict risk and economic conditions over extended periods.
But if yields on shorter-dated bonds jump above the 10-year — producing an “inverted yield curve” — that’s a sign that investors expect a deterioration in near-term economic conditions and aggressive intervention from the Federal Reserve.
Investors indicated on Friday that they’re watching to see if this happens again. Jim Reid, a strategist at Deutsche Bank, called the run-up in the yield on the two-year Treasury an “ominous sign.”
The worry is that because the Fed is now playing catch-up on inflation, it may make a mistake and pull back support for the economy too quickly, causing a recession.
Hewson said that the curve may be a “warning to the Fed that maybe if they tighten too quickly they could cause more damage than they intend.”
Yet he sees “stagflation” — rampant inflation and weak economic growth — as a larger risk than a recession.
“That’s the bigger concern right now — that inflation starts to outweigh GDP,” Hewson said.
Zillow tries to put its rough year behind it
Zillow’s announcement that it was exiting the home flipping business dealt a massive blow to the company. Now, it’s trying to prove it can move on.
“Zillow has a rock-solid financial foundation,” CEO Rich Barton said in a statement, adding that about one quarter of US homebuyers used Zillow as they shopped last year.
Remember: Zillow’s shares collapsed after it said that it would shut down its Zillow Offers unit, which used algorithms to buy up thousands of homes that it would then renovate and try to quickly resell, a process known as “iBuying.”
But the company later disclosed this approach wasn’t working, pointing to “the unpredictability in forecasting home prices.”
The failure of the business led to a $528 million loss last year, Zillow said Thursday.
Yet the company is making good progress selling the homes still in its portfolio, offloading about 8,350 last quarter.
“We’ve made significant progress in our efforts to wind down our iBuying business — selling homes faster than we anticipated at better unit economics than we projected,” Zillow told shareholders. “We feel even more confident today that exiting iBuying and eliminating the housing market balance sheet risk to our company and our shareholders was the right decision.”
Never tweet? Accidental post scrambles Affirm shares
Buy now, pay later has been booming. But that’s not why people are talking about Affirm, one of the industry’s top players.
The company’s shares rallied as much as 12% on Thursday. The company, which went public early last year, accidentally shared some results from its latest quarter early on Twitter.
Wall Street was less happy with the full picture, which showed ballooning losses for the last three months of 2021. Affirm said this was due to stock-based compensation tied to its initial public offering.
Investor insight: Both tweets and earnings have consequences. Shares ended the day 21% lower, and they’re down another 10% in premarket trading Friday.
While the company’s stock is still trading above its initial public offering price of $49, it’s going through a rough patch — shedding more than 60% after peaking above $176 in November last year.
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Also today: The latest University of Michigan survey of consumer sentiment arrives at 10 a.m. ET.