Chart: Inverted Yield Curve Meaning | Adviser Investments

Chart of the Week: Is the Yield Curve a Sell Sign for Stocks?

The yield curve and recession talk are all over the media—heck, it was the topic of my chart of the week seven days ago (which is worth a read for a recap on what the yield curve is). While I’m in the camp that they yield curve is not yet inverted, let’s say it is. Should investors take that as a reason to sell their stocks? In short, no!

Looking back at past yield-curve inversions, stocks have, on average, gained ground whether you are looking out over the next 12 months or until the onset of the next recession. In the chart below, you can see that, 12 months post inversion, stocks only declined in two of the six most recent occurrences dating back to 1978. And by the time the economy actually went into recession, the results look even better for those who stuck with their investments, with gains in five out of six periods.

Note: Chart shows returns for Vanguard 500 index for the periods specified. 1978 and 1980 dates are based on the 10-year to 2-year Treasury bond spread. 1989, 2000, 2006 and 2019 dates determined using the 10-year to 3-month Treasury bond spread. Sources: Morningstar, Adviser Investments.

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bondsChart of the WeekJeff DeMasorecessionstocksyield curve