Chart of the Month | Yield Curve Inversion - Signal or False Positive?

September 5, 2019 |
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Lately, there has been quite a bit of hand-wringing by the financial media about the yield curve inversion. It seems that many prognosticators believe that an inversion is a clear market signal that a recession is soon to follow, and stock investors should be concerned. Looking at the last seven times that 10-year to 2-year treasury curves inverted, our read of the data suggests that it’s a poor indicator of future stock returns. This month’s chart shows the cumulative 12-month returns of the S&P 500 Index from the time the curve inverted. On average, the market rallied 9.1% in the following 12 months and ended with positive returns in five of these seven instances. Our take – don’t rely on an inversion as a signal to short or underweight stocks in your portfolio.

Chart of the Month (COM) - S&P 500 Performance from Inversion

Ivo C. Nenin

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Ivo C. Nenin

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