Pay No Attention to the Inversion Behind the Curtain

By Norman Conley via

Traditional wisdom says that investors should head for the hills as soon as the yield curve inverts.

As you can see above, of the 36 treasury yield spreads calculated, just 5 (or about 14% of the overall curve) are currently inverted. Despite this warning sign, investors continue to bid stocks up in 2019. In fact, the partial inversion is getting almost no attention from financial pundits on television or social media. We think there are 2 reasons that investors are largely ignoring the inversion.

1) The extent of the inversion isn’t enough to set off an alarm for most investors and they’re happy to let the market rebound from December 2018 lows.

2) It has become increasingly clear over the last decade (and especially since Jerome Powell has taken over) that the Fed will be flexible and accommodative when needed. We see no reason for that narrative to change based on recent market friendly actions by the Fed.

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