Yield Curve Inversion: Clarity Through the Sound Bites

Financial news is buzzing this morning as a result of the 10-year Treasury yield briefly trading below that of the 2-year treasury, a phenomenon, known as ‘inversion’. A sustained inversion is often considered an early warning signal around the strength of the economy and potential for recession.  The simplicity and irregularity of this if/then relationship makes for enticing media sound bites that may cause confusion regarding the immediacy of recession.

To help add clarity, we constructed a chart that outlines the lag between yield inversion and the peak of an economic cycle (blue bar, left axis) along with stock market performance (orange dot, right axis):

As of this writing, the yield curve is no longer inverted, but nonetheless, will surely be discussed in media. As wealth managers, we consider this one reference point in a sea of data and, as always, encourage well-reasoned decisions rather than irrational or impulsive reaction around any single metric.

Disclosure: Marshall Financial Group, Inc (“Marshall Financial”) is an SEC-registered investment adviser with its principal place of business in Doylestown, Pennsylvania.   This newsletter is limited to the dissemination of general information pertaining to Marshall Financial Group’s investment advisory services.  Investing involves risk, including risk of loss.

This newsletter contains certain forward‐looking statements (which may be signaled by words such as “believe,” “expect” or “anticipate”) which indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward‐looking statements. As such, there is no guarantee that the views and opinions expressed in this letter will come to pass.

For additional information about Marshall Financial, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully.