Why an inverted yield curve matters
An astute client brought up a great point – “What does an inverted yield curve signify, and what is the general timeframe for a recession/market decline, and how long before this happens?”
First, an inverted yield curve (shorter term maturities yielding a higher interest rate than longer term maturities) has preceded EVERY recession and market decline dating back to 1956. The time from inversion to stock market peak averages 15 months, and the stock market has increased an average of ~ 17% during that time.
As I’ve beaten this dead horse over the past year (sorry!), I want to reiterate my findings from the 2000 and 2008 declines:
- The time from the INITIAL inversion (remember, this time it happened Dec 3, 2018) to S&P 500 peak was:
- 2000: 6 months
- 2008: 22 months
- We are currently 9 months into the initial inversion
- The S&P 500 increase during these periods was:
- 2000: 7%
- 2008: 21%
- Realize that since the initial inversion on Dec 3, 2018 and YTD 2019, the S&P 500 has ALREADY increased ~ 15% -- WE ARE RIPE FOR A MARKET DECLINE
- The time it took for the S&P 500 to hit bottom after peaking out was:
- 2000: 30 months; total -44% loss! 4 yrs to regain this loss!
- 2008: 18 months; total -51% loss! 4 yrs to regain this loss!
- The only markets I found that actually GAINED significantly during these declines:
- Bonds (US and investment grade corporate):
- 2000: +34%
- 2008: +17%
- Gold :
- 2000: +37%
- 2008: +27%
- Bonds (US and investment grade corporate):
I hope this helps to clarify why I’ve been so emphatic about our strategy to focus on bonds and gold this year – we’ve moved our portfolios out of stocks and into bonds/gold throughout the year, finalized in May!!
Paul
Paul Wildberger, CFP®, MBA
President, Integrity Private Wealth Advisors, LLC
10000 N. Central Expwy #400
Dallas, TX 75231
214-729-1460
