What’s Next for Stocks When the Yield Curve Inverts
Stock-Markets / Financial Markets 2018 Aug 27, 2018 - 04:36 PM GMTBy: Troy_Bombardia
Even though the 10 year – 3 month yield curve is the more useful & timely yield curve, the 10 year – 2 year yield curve is still the most popular yield curve. The 10 year – 2 year curve is almost inverted.
At this rate, the 10 year – 2 year curve will invert rather quickly: within the next few months. What happens next to the U.S. stock market (historically) after the 10 year – 2 year curve becomes inverted for the first time in each economic expansion?
Here’s what happens next to the S&P 500 after the 10 year – 2 year yield curve inverts for the first time in each economic expansion.
Here’s another way to visualize this data.
Click here to download the data in Excel
Let’s look at the historical cases in detail.
December 27, 2005
The S&P rallied for another 2 years before it began a bear market.
May 26, 1998
The S&P rallied for another 2 months before it began a “big correction”.
December 13, 1988
The S&P rallied for another 1.5 years before it began a “big correction”.
September 12, 1980
The S&P rallied for another 2 months before it began a “big correction”.
August 17, 1978
The S&P rallied for another 1.5 years before it began a “big correction”.
Conclusion
As you can see, the U.S. stock market usually keeps going up after the 10 year – 2 year yield curve becomes inverted. This is because the 10 year – 2 year yield curve inverts TOO EARLY. It gives a bearish signal too early.
The 10 year – 3 month yield curve is still at 0.8%, which means that it won’t be inverted in the next few months.
Don’t be too concerned about the 10 year – 2 year yield curve’s impending inversion right now. Focus on the 10 year – 3 month yield curve.
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By Troy Bombardia
I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.
Copyright 2018 © Troy Bombardia - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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