Co-produced with Beyond Saving
Long-time readers know we spent the past year warning about high inflation and discussing ways to be positioned to benefit from it. I think today, we can all admit that inflation is not “transitory”. Investors who positioned their portfolios to benefit from it had a good Q1, those who stuck with Growth stocks, not so much. Well, the past is the past. Yay to us, nobody cares, it’s time to figure out how to collect dividends tomorrow. Now it’s time to think about the future.
Recently, the yield curve inverted along with the widely watched 10-2 year spread. Today, I want to take a closer look at the yield curve, and what it means for the potential of a recession. While the news media is drooling over the possibility of a recession, I see a much different path. Recession risks are very low for the foreseeable future.
Reading the economic tea leaves is never straightforward. There are often conflicting indicators, one that points toward doom and gloom, and others that point to glitter and gold. Reading them is as much art as science and you must constantly consider the big picture. Let’s take a look at what is happening today.
The Yield Curve Inverted
The yield curve officially “inverted” for a brief period, with 2-year Treasuries trading at a higher yield than 10-year Treasuries. The spread remains very low, and it wouldn’t take much for it to invert a second time.
Grab your bowl of popcorn and cue the news articles about the upcoming recession. A yield curve inversion is not a reason to panic in the near term. In fact, historically it has been a buy signal indicating that the next 12 months will be positive for the stock market. The historical pattern is that after an inversion happens it is 1.5 years or even longer before a recession happens. File this bit of information away as notice that in 12-18 months, recession risk might be elevated.
Why do I say “might”? The 10-2 spread inverting has been a sign of…
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