The Bond Market Signals Trouble Is a Stock Market Downturn Imminent?

Many economists expected a U.S. recession in 2023 due to aggressive rate hikes, but the economy remained strong.

Economic Growth: The economy is projected to grow at 2.9% in Q1 2024, above the 10-year average of 2.5%.

Recession Fears Fade: Economists now believe the Federal Reserve will achieve a soft landing, taming inflation without triggering a recession.

Treasury Bonds Predict Recessions: The 10-year and 3-month Treasury yields have predicted every recession since 1969, with one false positive.

Current Bond Market Signals: The inversion between the 10-year and 3-month Treasury yields began in November 2022, suggesting a potential recession by the end of next month.

Historical Perspective: The current yield curve inversion is the most severe since June 1981, indicating a high probability of a recession.

Investment Strategy: Despite the potential for a recession, investors should avoid selling stocks, as the market tends to rebound before recessions end.