You may have heard that on April 1st of this year, the yield curve inverted, and that an inevitable recession is coming. This, however, is only one part of a much bigger financial picture. 

When the yield curve inverts, most often what is being referenced is the 2-year treasury yield having surpassed the 10-year treasury yield. But not all yield curves have inverted. When you look at the spread between 10-year / 2-year treasuries in orange below vs. 10-year / 3-month treasuries in blue below, you’ll see a very different story. Where the blue is inverted at -0.0017, the orange is +1.851. 10yr-3mo.png

 

 

*For more background information on the yield curve, check out this article*

https://www.sofi.com/learn/content/what-is-a-yield-curve/                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

 

 

 Will a recession happen? Most likely, yes. But when? We don’t know. How you react today will determine how you fair in the future.   

Remember, the markets are cyclical, and investors tend to be reactionary which is counter-intuitive, causing them to get greedy and buy when markets are strong and then get scared and sell when markets are weak. This is the opposite of the buy low, sell high mantra we all know.

 

If the yield curve inverting is a predictor of a future recession in approximately 24 months, give or take, then it is also a predictor of market growth as displayed by the average and median growth of the S&P over the course of a year following past inversions.

 

**To take a deeper dive into how markets perform following an inversion, check out this article from Bloomberg.**                                                                       

https://www.bloomberg.com/news/articles/2022-04-03/in-a-world-full-of-risk-stocks-look-like-the-least-bad-option

 

When acting during times of volatility, like we are in now, it is important to consider a few things that are deeper than solely the performance of your holdings. 

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According to the business cycle, a future expansion is just as likely as a future recession. Thoughtful maneuvering through these choppy waters, tends to be much more prudent than jumping overboard and abandoning all reason and data.