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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):
Seasonal Shift To Liquidity Drought Commences: What To Expect From Risk Assets, Bond Yields
Why S&P 500 Remains A Buy With 10Y Treasury Yield At 2%
Yield Curve Improvement Bodes Well For Economy
Dividends By The Numbers In October 2019
The Shifting State Of Yields
The Inverted Yield Curve
Fading Risk Aversion Will Boost Bond Yields
Market Volatility Bulletin: Focus On Vanguard High Dividend Yield ETF
Yield Curve Disinversion
Bond Market History: When The Yield Curve Un-Inverts

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