Think rate cuts will save the bull market? Think again, according to Stifel. “Fed cuts are a red herring,” Stifel strategists said in a note to clients. “We have our doubts about the currently widespread belief that ‘Fed Cuts = Buy Stocks.'” Markets are expecting the central bank to lower benchmark rates by at least a quarter-percentage point in a few weeks, which could give the stock market a much-needed boost after a volatile period. However, Stifel thinks a big phenomenon in the bond market is spelling trouble ahead, set to put pressure on risk assets regardless of the Fed’s future moves. The benchmark 10-year yield inched above the 2-year for the first time since June 2022 earlier this week, reversing a classic recession indicator. An inverted yield curve has signaled most recessions since World War II. A normalization of the curve usually takes place before a recession hits, meaning the U.S. could still be in for some rough economic waters ahead. “Economic slowdowns have always been preceded by bottoming 10Y-2Y ‘bull steepening’ yield curves,” Stifel said. “Bull steepening yield curves have historically led to the weakest stock markets.” The Wall Street firm is advising clients to position defensively, buying inexpensive equities in consumer staples and health care, for example. Specifically, stocks in biotech, life sciences, household goods, food and beverage industries tend to outperform if the trend in the bond market persists. The S & P 500 is down more than 2% week to date as concerns mounted over the economy. Investors anxiously await Friday’s jobs report to further assess the outlook.