Let's first define exactly what a yield curve is.
TheStreet's Martin Baccardax wrote, "The so-called yield curve, a term for the difference between interest rates of different maturities in the bond market, has 'flattened' throughout the spring and summer months as two-year yields fall in anticipation of interest rate cuts from the Federal Reserve and 10-year yields following suit amid questions over mid-term growth prospects and huge inflows of foreign investment dollars as trillions in fixed income debt outside of the U.S. falls deeper into negative rate territory."
Now here's why that matters: historically, an inversion of the yield curve means that there's a recession on the horizon.
An inversion--just so investors are caught up--means that the two-year yields rise above the ten-year yields.
"Look, this market is all about the yield curve. It's not about the fundamentals. If it was about the fundamentals--I mean, I have the list of the top 50 companies in the S&P and it's very hard to find--even in the top 20, there's only three that actually have something to do with the inverted yield curve. So what you're doing is you're just saying all stocks are worth less because the recession is coming there. There's a pool of money that's going to be in stocks no matter what, and it's going to gravitate after the smoke clears toward the companies that do well in a recession," explained Cramer.
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