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There's Almost Always A Buying Opportunity After An Inverted Yield Curve

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

SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST - DIA
SPDR DOW JONES INDUSTRIAL AVERAGE ETF TRUST - DIA  


Older articles featuring Spdr Dow Jones Industrial Average Etf Trust (DIA):
More Stimulus Or Not - Yields Are Still Headed Lower
High Yield Investing: Bend It Like Buffett
On My Mind: The Fed's Final Frontier - Negative Rates Or Yield Curve Control?
Yield Curve Steepening: An Ominous Sign
Treasury Yields: A Long-Term Perspective
Style-Box Update, Small-Cap And High-Yield, And Sector Returns
Global Yields For Stocks And Bonds
EXG: 10% Yielding CEF, Earlier Than Expected Vaccine For COVID-19 Can Support The Rebound
Dividend Watch: A Bar Bet You Will Win
Market Volatility Bulletin: S&P Dividend Yield Outstrips 10Yr Treasury.Rightfully So

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