What a volatile week in the markets! Much ado was made this week about a section of the yield curve (2’s/10’s) inverting, which has historically preceded recessions. The calls for recession are worth paying attention to but may turn out to be premature. We wrote a Global Glimpse in April about inverted yield curves and how to think about them.
Without rehashing the piece too much, here are the important takeaways:
Inverted yield curves are an effect of a slowing economy, not the cause of it.
Recessions tend to lag yield curve inversions by at least a year or two.
Stock markets have historically done well AFTER 2’s/10’s yield curve inversions.
Following the last 5 inversions of the 2’s/10’s in the past 40 years, stocks were positive every time after one year and 80% of the time after two years.
This MarketWatch article has some additional data on yield curve inversions…