This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Little Concern About Inverted Curve

Few Wall Street phrases have proven costlier to investors than: "This time it's different." From Dutch tulips to Internet stocks, the promise of a new paradigm has generally led to financial pain rather than overflowing profits.

Keeping that squarely in mind, what's a shareholder to do when his bond fund manager swears that the recently inverted yield curve will not once again lead to an economic recession because "this time it's different"?

Well, if your solution is "ask another fund manager," don't bother. They are all whistling the same tune.

"Yes, the curve has touched on an inversion. And yes, the curve could invert further. But there are some fundamental reasons why this is occurring," says Brian Stine, investment strategist for Allegiant Funds. "And it does not necessarily foreshadow the end of the world, or even the end of the healthy economy and markets as we have known them this year."

The end of the world may not be nigh, but what has traditionally been a very good sign of financial apocalypse, or at the very least an economic downturn, appeared last week when the yield on the two-year Treasury note briefly traded above the three-year and five-year Treasuries.

The difference was roughly a basis point, which may seem like a pretty small amount to get all worked up about, especially considering it was erased when the yields soon flattened. Moreover, the benchmark 10-year Treasury bond, which is generally viewed as the yardstick when measuring curve inversion, was yielding roughly 4.4% at the time, a full 8 basis points above the two-year Treasury note.

Nevertheless, as Tony Crescenzi, chief bond market strategist at Miller Tabak and contributor, points out, every inverted yield curve since 1970 has been followed by a period in which S&P 500 earnings growth was negative, and has almost always preceded either an economic slowdown or a recession.
1 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs