{"id":7714,"date":"2018-08-27T18:29:11","date_gmt":"2018-08-27T18:29:11","guid":{"rendered":"http:\/\/zackspcg.com\/blog\/?p=7714"},"modified":"2022-02-26T13:15:15","modified_gmt":"2022-02-26T13:15:15","slug":"the-yield-curves-message-to-investors","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/the-yield-curves-message-to-investors\/","title":{"rendered":"The Yield Curve\u2019s Message to Investors"},"content":{"rendered":"

The yield curve is one of the most coveted of economic indicators, and for good reason – in my view, it can provide investors with useful insights about how the economy, stocks, and bonds could perform going forward. And at the end of the day, that\u2019s precisely what we want to know.<\/p>\n

Most of the commentary on the yield curve these days \u2013 including some of our own \u2013 focuses on what happens to the economy <\/em>when the yield curve flattens and eventually inverts. Spoiler alert: inverted yield curves tend to be followed by recessions.<\/em><\/p>\n

________________________________________________________<\/p>\n

Economic Indicators You Should Keep an Eye On!<\/u><\/strong><\/a><\/p>\n

In addition to the yield curve, there are other key economic indicators that may be able to help you navigate the market and prepare your investments for what\u2019s to come. To help you keep an eye on these economic data releases, earnings reports, and other key economic factors, we are offering all readers a look into our just-released\u00a0Stock Market Outlook report.<\/strong><\/p>\n

If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<\/p>\n

IT’S FREE. Download the Just-Released\u00a0 Stock Market Outlook<\/u><\/strong>1<\/sup><\/u><\/strong>>><\/u><\/strong>\u00a0<\/a><\/p>\n

________________________________________________________<\/p>\n

The chart below illustrates the economic point pretty clearly. In the picture, you see the 10-year U.S. Treasury minus the 2-year U.S. Treasury, which provides a suitable but not perfect representation of the yield curve. Anything above 0% on the chart above means the 10-year U.S. Treasury is higher than the 2-year, which would imply an upward sloping yield curve.<\/p>\n

It probably won\u2019t take readers long to notice a trend in this yield curve chart: once the line dips below zero, i.e., once the yield curve inverts, a recession (marked by the gray bars) follows shortly thereafter. <\/em>It follows that the yield curve is a hot topic today given the fact that the 10-year minus the 2-year is fast approaching the zero percent line.<\/p>\n

\"\"<\/p>\n

Source: Federal Reserve Bank of St. Louis<\/em><\/strong><\/p>\n

This data is useful, but again it only offers us insight into economic implications<\/em> \u2013 not necessarily investment implications. <\/em>Here\u2019s another spoiler alert: stocks tend to do well in the months following a yield curve inversion.<\/strong><\/p>\n

Indeed, if we take a look at how the market responds to inverted yield curves, investors might not be so intimidated by the yield curve\u2019s flattening pattern. The table below shows how the S&P 500 performed from the time the yield curve inverted to the time a recession began. As you can see, with the exception of the \u2018dot com bubble\u2019, the S&P 500 has historically delivered solidly positive returns in the months following a yield curve inversion:<\/p>\n

\"\"
\nBottom Line for Investors<\/strong>In fact, the average return in the period between a yield curve inversion and the start of a recession is +15%, which is certainly nothing to shrug off. The reason for these positive returns, in my view, is simple: it\u2019s because once a yield curve inverts, recessions do not tend to immediately follow. <\/em>It takes an average of 17 months for an economic slowdown to take hold, and in that time, stocks have historically continued to go up.2 <\/sup><\/p>\n

A flat or negatively sloped yield curve, generally speaking, may indicate unfavorable economic prospects going forward. In my view, it would be reasonable to expect that slower and\/or negative growth and higher inflation would follow in the months following a yield curve inversion.<\/p>\n

But I also believe that investors would be wise to avoid conflating an inverted yield curve with a poor or negative investment climate. Quite the opposite, in my opinion.<\/p>\n

History tells us that once a yield curve inverts, it can take several months or even years before an economic recession follows. And history also shows that during the \u2018final stretch\u2019 of economic growth, stocks have tended to follow suit with positive returns.<\/p>\n

In the meantime, I recommend keeping an eye on economic data releases, earnings reports, and other key economic factors. Our\u00a0Just-Released September 2018 Stock Market Outlook3<\/sup> Report<\/u><\/strong>,<\/a> will give you insight into just that!<\/p>\n","protected":false},"excerpt":{"rendered":"

The yield curve is one of the most coveted of economic indicators, and for good reason – in my view, […]<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63,71],"tags":[],"class_list":["post-7714","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/7714","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=7714"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/7714\/revisions"}],"predecessor-version":[{"id":10844,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/7714\/revisions\/10844"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=7714"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=7714"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=7714"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}