Think a rate cut will save the bull market? Think again, according to Stifel. “The Fed cut is just a distraction,” Stifel strategists said in a note to clients. “We are skeptical of the prevailing belief that ‘Fed Cuts = Buy Stocks.’” Markets are expecting the central bank to cut its benchmark interest rate by at least a quarter of a percentage point in the coming weeks, which could provide a much-needed boost to stocks after a period of volatility. But Stifel says a major bond market phenomenon is signaling trouble ahead, weighing on risk assets regardless of the Fed’s future moves. The benchmark 10-year yield edged above the 2-year yield for the first time since June 2022 earlier this week, inverting a classic recession indicator. An inverted yield curve has signaled nearly every recession since World War II. The normalization curve typically precedes a recession, meaning the U.S. could still face some economic hardship down the road. “Recessions always precede the 10-year ‘steepening’ yield curve, which bottoms out at two years,” Stifel said. “Historically steepening yield curves have led to the weakest equity markets.” The Wall Street firm is advising clients to position themselves defensively, such as buying cheap stocks in consumer staples and health care. In particular, stocks in the biotechnology, life sciences, home goods, and food and beverage sectors tend to outperform if the bond market trend continues. The S&P 500 has fallen more than 2% so far this week as concerns about the economy grow. Investors are eagerly awaiting Friday’s jobs report to further gauge the outlook.