The U.S. yield curve just uninverted after a +700-day inversion. Wait, what does that mean?
- It means the yield curve went from below zero into positive territory
- This signal popped up in May 2007 (before the financial crisis) and November 2000 (right before the Dot Com bust)
- In fact, every single time this has happened, an economic downturn followed.
Even the Great Depression had its yield curve moment in October 1929.
The yield curve is like a financial fortune teller:
- It shows how markets are pricing in the labor market’s health.
- When inverted, it signals a hot job market and often, the Fed raising interest rates.
- As it uninverts and steepens, it’s saying, “Hey, the job market’s cooling off!”
Look at this chart – the unemployment rate is practically the yield curve’s shadow! When the yield curve is inverted, it often coincides with the Federal Reserve tightening monetary policy to cool down the labor market.
So… Recession Incoming?
Not so fast! Here’s where it gets tricky:
The yield curve steepening has already caused some market hiccups:
- 10% S&P 500 correction in 2023
- Another 10% dip in July-August 2024
SO… Is this just a fake-out? Let’s take a trip down previous episodes:
- 2006: Yield curve uninverted, then reinverted. Result? S&P 500 hit new highs!
- 1998: Brief inversion, then uninversion (with a 20% market panic!), then… market surge to all-time highs.
- 1989: Uninversion still saw a full year of upward market price action as the recession didn’t occur until mid-1990
Eventually, we do think that the economy is heading into a recession.
Recent market correction may only be a taste of the larger downturn once a recession actually begins. You can find all our recession hedge bets with their setups for only $1.45/day here.
The Million-Dollar Question
Will this be another whipsaw signal that could send stocks soaring again?
Here’s the catch: Every recession has a catalyst.
- 1990: Kuwait invasion → Oil shock
- 2000: Tech bubble burst
- 2007: Housing market collapse
Right now? No clear catalyst in sight. But don’t get too comfortable…
The Ticking Time Bomb
This has been the longest yield curve inversion since 1929 – over 700 days!
… And historically, longer inversions = bigger market drawdowns.
We’re in uncharted territory that could spell a massive drawdown when (not if) a recession hits.
When the yield curve is inverted for shorter periods, it typically leads to shallower stock market corrections because the recessions are not as severe.
However, when the yield curve stays inverted for longer (like today), it suggests that monetary policy has probably been too tight for too long.
This has historically caused some pretty severe market drawdowns, like the crashes of 1974, 2008, and 1929.
What’s a Savvy Investor to Do?
At Game of Trades, we’re not just watching – we’re trading every day:
- Our current trades are positioned for market strength…
- …while increasingly hedged against potential large drawdowns.
If stocks keep climbing, we’ll keep shifting gains into recession hedges.
This strategy allows us to maximize upside, while managing our risk.
Want in on our strategy? Sign up here for full access to our Active Trades and real-time Trade Alerts + Investment Strategy. Trust us, you won’t want to miss this!
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