Weekend Reading: The Yield Curve Just Inverted... Now What?

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
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Weekend Reading

For the first time since August 2019, the U.S. economy saw a yield curve inversion. This means the interest rate paid on our short-term debt exceeded the paid interest rate on long-term debt of the same quality.

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Investor concern: Why might this worry investors? Historical data has shown a yield curve inversion can be a predictor of a looming recession, but there is ultimately no guarantee and it doesn’t mean a worst-case scenario for the market either.

Hold your horses: Over the past four-plus decades, we’ve experienced six yield curve inversions, five of which followed with a recession one-to-two years later. Beyond that, however, the last yield curve in 2019 resulted in no recession and stocks have risen 68 percent since. If you think it’s time to sell off and move to bonds, take a pause! According to the stats, U.S. Treasury bonds are just as likely to underperform as stocks following an inversion, which means the best move to make right now might be no move at all.

My thoughts: It feels necessary to always revisit the data to reinforce the fact that timing or predicting the short-to-mid-term movements of the stock market is a futile effort. This also emphasizes the importance of a strategy for short-to-mid-term downward trends in the stock market, especially when drawing income for retirement.