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How Worried Should You Be About A Yield Curve Inversion?

Published Thu, 06 Dec 2018 10:31:22 -0500 on Seeking Alpha

We would like to preface this article by saying that while the analysis of markets is a multi-faceted and multi-dimensional study, this article will examine simply one of those dimensions: the yield curve and its correlation/impact on financial markets. As such, this analysis isn't the answer to the market riddle, but rather an important piece in the much larger market puzzle.
Over the past several months, the financial markets have dealt with multiple headwinds and concerns which presently leave the S&P 500 up just 2% on the year, versus a 90-year average annual gain of 10%. The most recent of these market headwinds is a potential yield curve inversion, which economists and market observers look at as a harbinger of a recession (a yield curve inversion has correctly predicted every U.S. recession since 1950).
Our research indicates that while a yield curve inversion is a harbinger of bad news for financial markets, it isn't the doomsday scenario that many market observers think it to be. During prior major yield curve inversions in the era of the digital economy (post-1985), a yield curve inversion has correctly predicted a market top, but not with perfect timing. Each time the yield curve has inverted since 1980, the S&P 500 rallied meaningfully in the several months following the inversion, and often rallied for more than a year. Instead, the true predictor seems to be when a negative 10-2 Treasury Yield Spread starts to move up, as this dynamic has... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
SPDR S&P 500 ETF 277.85   0.0 0.00 0.00 2.07
PROSHARES ULTRASHORT S&P 500 34.70   0.0 0.00 0.00 2.03