Stock-Market Peak: Curve Inversion and Time

stock-market peak: Oliver Jones, market economist for Capital Economics told Market Watch that while it is sometimes the case that stocks continue to deliver strong returns for many months after a yield curve inversion as they did in the lead-up to the 2007 stock-market peak it is by no means the rule, and already weakening economic data suggests that equity investors won't be so lucky this time around, according to Market Watch. We already see evidence of payroll growth slowing, retail stales beginning to weaken and less U.S. demand for imports, at the same time that we're seeing signs of a corporate earnings slowdown, Jones said, arguing that these weren't traits the economy displayed at the time of the 2006 yield curve inversion. But some analysts and economists are warning that statistical averages can be misleading, and that there is reason to believe that the latest yield curve inversion signals returns for the rest of year will be tepid at best and that the stock-market top may already be in. An inverted yield curve is a situation where short-term interest rates sit at or above long-term rates, a dynamic in the government-debt market that can be a precursor to an impending recession, as it indicates investors believe that growth will be weak. Read The yield curve inverted here are 5 things investors need to know Capital Economics Caption outside of wrapper for normal article images Jones noted that over the past seven instances when the yield curve inverted, three of those instances saw the S&P 500 index SPX, 0.67% peak before the onset of a recession see table above . He predicts that this time around, the market will behave as it did in 1973, when the market peaked six months before the yield curve inversion. On Friday, the yield on the 10-year Treasury note TMUBMUSD10Y, 0.00% fell below the yield on the 3-month T-bill TMUBMUSD03M, 0.00% An inversion of the 10-year/3-month curve is the most reliable indicator of potential recession, according to researchers at the San Francisco Fed, having preceded the past seven such downturns. (news.financializer.com). As reported in the news.