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

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

April 11, 2022

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.

This material is distributed for informational purposes only. The ideas and opinions contained herein  should not be viewed as recommendations or personal investment advice. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2022 Adviser Investments, LLC. All Rights Reserved.

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.