Stocks were under pressure for much of August as U.S.-China trade tensions escalated, with Washington and Beijing announcing escalating rounds of tariff increases. Worries over the economic outlook rose, highlighted by a Treasury rally that sank yields and resulted in an inversion of the main measure of the U.S. yield curve, with the 10-year yield falling below the 2-year rate\u2014a phenomenon viewed as an often reliable recession indicator.<\/p>\n
Markets tend to keep moving higher immediately following a yield curve inversion. Since 1978, the S&P 500 has risen an average of 13% from the first time the spread inverts on a closing basis to the beginning of a recession, according to Dow Jones. Since 1956, past recessions have started on average around 15 months after an inversion of the 2-year and 10-year yields. Of course, past performance cannot guarantee future returns.<\/p>\n
Even if the yield curve means a recession is on the way, that shouldn’t necessarily be a red flag for investors.<\/p>\n
Contrary to what you might think, stocks actually rose during half of the last 14 recessions, and they were positive in 11 out of the 14 years leading up to a recession. The stock market was down a year later only three times following a recession. In general, stocks tend to perform about average in the year leading up to a recession, below average during a recession, and above average in the one, three, and five year periods following the end of a recession.<\/p>\n
Click here for a table of stock market returns before, during, and after recessions.<\/p>\n","protected":false},"excerpt":{"rendered":"
Stocks were under pressure for much of August as U.S.-China trade tensions escalated, with Washington and Beijing announcing escalating rounds of tariff increases. Worries over the economic outlook rose, highlighted by a Treasury rally that sank yields and resulted in an inversion of the main measure of the U.S. yield curve, with the 10-year yield […]<\/p>\n","protected":false},"author":1,"featured_media":9707,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[88],"tags":[570,741,731,742,743],"class_list":["post-9705","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-market-commentary","tag-markets","tag-yield","tag-yield-curve","tag-yield-curve-history","tag-yield-curve-inversion"],"yoast_head":"\n