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Lions and Tigers and Yield Curve Inversions. NEW POST. $SPX $TNX

In December 2018, part of the yield inverted for the first time since 2007. At month-end, the 6-month Treasury bill yield stood at 2.56%, 5 basis points higher than the 5-year yield (2.51%).
Naturally, many investors are afraid, with 45% predicting an imminent recession in a recent poll…
Is this a reasonable expectation? Let’s take a look at the last 3 times the yield curve inverted in a similar fashion (6-month higher than 5-year) after a long period with a positive slope…
1) Dec 2005: yield curve inverted, first time since 2000. S&P ends month at 1,248. What happened next?

S&P continued to rally for another 22 months, rising over 26% b/f peaking in Oct 2007 at 1,576.

Expansion continued for another 24 months b/f the recession began in Dec 2007.
2) Aug 1998: yield curve inverted, first time since 1989. S&P ends month at 957. What happened next?

S&P continued to rally for another 19 months, rising over 62% b/f peaking in Mar 2000 at 1,553.

Expansion continued for another 31 months b/f the recession began in Mar 2001.
3) Mar 1989: yield curve inverted, first time since 1981. S&P ends month at 295. What happened next?

S&P continued to rally for another 16 months, rising over 25% b/f peaking in Jul 1990 at 369.

Expansion continued for another 16 months b/f the recession began in Jul 1990.
Lesson: yield curve is a long leading indicator, and in the last 3 cycles it took between 16 and 31 months after 5-yr/6-month inversion for a recession to start and between 16 and 22 months for the stock market to ultimately peak...
Does it have to take take that long?

No - there are no hard and fast rules in investing. Every cycle is different and just because something hasn’t happened in the past doesn’t mean it can’t happen in the future...

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