Front Page|Our Services|Our Team|Client Center|Financial News|Events|Contact Us

Financial Briefs

More Articles  Printer Friendly Version

 

Is The Inverted Yield Curve The Financial Fakeout Of 2019?

The day the yield curve inverted, on Wednesday, August 14th, stocks plunged and financial headlines turned grim.

Should you worry? Or is the yield curve inversion the financial fakeout of 2019?

"Longer-term rates below shorter term rates are a clear signal from bond investors that they think the United States economy is on the downswing," reported The New York Times' senior economics correspondent, Neil Irwin, "that its future looks worse than its present." But this widely-reported storyline in the financial press misses important context.

In the past, when the yield curve inverted, it was usually because investors saw fundamental economic measures deteriorating, but that's not happening now. Rear view mirror investing — assuming history will repeat itself — is not smart in current conditions, because unprecedented negative yields in Europe and Japan make the road ahead different this time.

At the same time stocks plunged on recession fears triggered by the yield curve inversion, the retail sales report from the U.S. Census Bureau in the 12 months through July surged 3.7%! That followed a 3.8% spike in June and a 3.1% rise in May. Since 70% of U.S. economic activity is consumer driven, the continued strength in retail sales extinguished recession fears. When consumers are spending like this, a recession cannot be unfolding.

The retail numbers are part of a growing body of evidence that the yield curve may be making a recession look much closer than it actually is. It's a broken indicator.

This doesn't mean the yield curve is not a useful forecasting tool. It just means it's not a useful tool in the current economic situation. A hammer can't fix every problem.

And things really are different this time because the current inversion of the yield is caused by an unprecedented condition: Negative yields in Europe and Japan, which are depressing yields on long-term U.S. bonds!

From a prudent professional's perspective, the inversion is a technical market problem of supply and demand and not a "real" economic problem. It's wise to plan on your retirement portfolio's fixed-income allocations yielding lower returns in the years ahead, but that doesn't mean the U.S. is headed for a recession. Fears about the inversion of the yield curve heightened stock market volatility but that does not mean the decade-long, expansion-fueled bull market is over. It seems likely to turn out to be the financial fakeout of 2019.


Email this article to a friend


Index
Tax Law Changes Delayed But Not Dead
About The Weakness In Manufacturing
Retirement Income Alert: Do You Own A $1 Million Plus IRA In A High Income-Tax State?
How Can We Help You Die In Peace?
A Primer On Setting Up A Trust Fund
Three Strategic Mid-Year Tax Tips
How To Avoid State Income Tax On Distributions From IRAs
Watch The Fed Closely In The Months Ahead
Say Goodbye To Stretch IRAs And Get A New Plan
Tax Alert: Plan Now For The Demise Of Stretch IRAs
Prepare For A Sweeping New Law On Retirement Account Taxes
U.S. - China Trade War Coverage Distorts Economic Reality
How To Give Gifts And Not Trip On The Gift Tax
Give To Charity From An IRA To Lower Your Tax Bill
Staying Realistic About Investing Amid Volatile Market Swings

This article was written by a professional financial journalist for Vantage Point Financial Services, LLC and is not intended as legal or investment advice.

©2019 Advisor Products Inc. All Rights Reserved.
© 2019 Vantage Point Financial Services, LLC | 329 Regency Ridge Drive, , Centerville, OH 45459 | All rights reserved
P: 937-432-1111 | F: 937-432-1110 markblack@vantagepointadvisor.com |
Contact Us

Securities offered through First Allied Securities, Inc., A Registered Broker/Dealer, Member: FINRA / SIPC.
Advisory services are offered through First Allied Advisory Services, Inc., A Registered Investment Adviser.

This site is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security which may be referenced herein. We suggest that you consult with your financial or tax advisor with regard to your individual situation. This site has been published in the United States for resident of the United States. Persons mentioned in this site may only transact business in states in which they have been properly registered or are exempt from registration.

Privacy Policy | ADV