You know the story. Most of the last several times the yield curve in the U.S. inverted, a recession followed at some point, therefore with the most recent inversion, a recession loomed. Maybe we would have had a recession anyway had we not had a global pandemic. Maybe not but clearly the recession we are in now was caused by the fallout from Covid-19 not an inversion.
Regardless, the timing of the Coronacrash and subsequent recession will be added to the statistics and future narratives around curve inversions. You will still need to educate clients that the correlation is based on too small a sample size and fails to appear in other developed nations. Further, because the time between the inversions and the recessions varies widely and the market behavior around these two events varies even more, using an inversion as a profitable market timing tool is unlikely.
I’ll save additional observations for next time. What are you seeing this time around?
Dan Moisand, CFP, has been featured as one of America’s top independent financial planners by Financial Planning, Financial Advisor, Investment Advisor, Investment News, Journal of Financial Planning, Accounting Today, Research, Wealth Manager, and Worth magazines. He practices in Melbourne, Fla. You can reach him at [email protected].