SAMT Blog
Yield curve and stock market
16. November 2019, by Mario V. Guffanti
Technical Analysis
One of the issues that has been discussed in the last period, especially in the U.S. media, has been the inversion of the U.S. yield curve: this type of event, which occurs when short-term interest rates become higher than long-term interest rates, is a predictor of a future recession (which unfortunately does not help the stock markets). In fact, the recessionary phenomenon occurs most of the time, but after a certain period with respect to the inversion of the curve. Many analysts have shown that from the moment of the inversion of the yield curve to that of a potential recession beginning, we must wait from one to three years. What I would like to propose in the next graph is not yet another comparison between the yield curve and the recessive data, but a comparison between the yield curve and the S&P 500 index to verify how the index behaved in the period following the beginning of the inversion of the curve.
The outcome is quite interesting. In the lower part of the chart we have the 10/2 year spread curve (difference between the 10 year Us Treasury rate and the 2 year Us Treasury rate). When it is in red zone, the curve is inverted: I have however signalled the periods...
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