Why would it be different this time?

Aug 14, 2019 | Jeremy Goldfarb


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So......one of the most closely watched recession indicators flashed yellow yesterday. The 10 year US treasury yield dropped below the 2 year US treasury yield by 1 basis point. Not a remarkable gap, but somewhat tectonic if you consider what it means.

since 1967, each and every recession in the US was preceded by this specific yield curve inversion

I have written about inversion before so I won't exhaust you with the how's and why's (click this post from May 30 to read about it). The most important question right now, is what to do as investors?

  • defense and lots of it: There is no need to immediately shift the portfolio, but certainly I would recommend upgrading the quality of what you own. Stay invested, but own "better stuff"
  • on the equity side of the ledger, companies that rely less on interest rate sensitivity tend to do better during rough patches. Things like healthcare, defensives, tobacco tend to ride out the storm much better
  • Fixed income investors with higher exposure to high yield should beware. It behaves like equity during rough patches, and you should be very aware of your credit quality
  • understand your risk!! -- this is the most key component. Know what you can handle. Sure we had some bumps in October and December of 2018, but it snapped back very quickly. Prolonged challenges such as those brought on by recession can be very difficult on investors psyche, and the pull to cash out is very strong.

So....to respond to the title of this post. I don't think it will. Stay invested, be prepared, and speak to your advisor.