Published Tue, 05 Nov 2019 08:04:37 -0500 on Seeking Alpha
For the purposes of this article, I'm going to solely focus on the inverted yield curve spread between the 10-year and 2-year Treasury yields, as it is perhaps the most widely-followed yield curve, and it didn't invert until many months after the other widely-followed yield curves inverted.
Following an inverted yield curve, there's almost always a buying opportunity. When I say there's a 'buying opportunity,' I mean an opportunity to 'buy the dip' after a stock market decline.
It's important to acknowledge a perfect track record: Every recession in the last fifty years came not more than 2 years (maximum) after an inverted yield curve. Every one, with zero exceptions.
Now, let's also recognize an imperfect track record: There have been some 'false positives' where the yield curve inverted, and a recession or downturn did not follow. Three examples come to mind:
1. There was a false positive in December 1965, as no recession followed. It would be over 4 years until the next recession. However, despite the absence of a recession, there was in fact a decline in stocks. Stocks were roughly 16% lower one year later. So maybe it wasn't that misleading. Stock market declines can happen without recessions; although it seems recessions always come with stock declines.
2. Then there was the inverted yield curve in December 1988. A recession followed in July of 1990, but consider this: In December of 1988, the S&P 500 (SPY) (VOO) (IVV) was trading at roughly 270. At the... Read more
|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST||272.32||0.0||0.00||5.67||2.10|
|SPDR S&P 500 ETF||301.29||0.0||0.00||5.42||1.82|
|VANGUARD DIVIDEND APPRECIATION ETF||120.84||0.0||0.00||0.00||1.58|
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