Diane and I had a family pool party and barbeque at her sister’s house on Saturday, a lazy Sunday afternoon, and disc golf and paddle boarding on Monday; all in all a perfect unofficial last weekend of summer.
I hope you enjoyed yours as well.
Recently there has been some media headline furor, and I have received a few calls on the recession headlines. The following information is intended to give you some peace of mind on this.
In a nutshell it is the inversion in the yield curve (along with some trade war geo-politics) which have created this. I certainly don’t dismiss that later but, there are always geo-political concerns. It can be difficult to gauge what their effect will be and we have survived, yes even thrived through a number of them in the past. The former definitely merits more serious consideration. The US 3 month and 10 year treasury yields inverted recently but, it is the 2 year vs the 10 year that has our attention. This one has been going back and forth the last few weeks between inverting and un-inverting. This is the much more meaningful one. If you want to delve into the specifics yield curves please let me know. Otherwise, the main points to consider are:
- Every US recession over the last number of decades has been preceded by an inversion in the US 2 and 10 treasury yields.
- HOWEVER, not every yield curve inversion has been followed by a Recession.
- ADDITIONALLY, the timing of when it has been followed by a recession has been an average of 15 -18 months later.
- The FOMC (US Federal Markets Open Committee) or “The FED” has very recently begun reducing interest rates in the US. In 1995 under arguably similar conditions it is believed pre-emptively lowering interest rates averted a recession. After they started lowering interest rates in 1995, a recession did not appear until 2001.
- The last year (number of years) prior to a recession can provide some great gains in the markets.
- 5 out of 6 of RBC DS’s other Recessionary indicators are all still Green for Growth
With all this in mind, our view is to still give stocks the benefit of the doubt, albeit more cautiously, at this point. We have the most, and best analysts in the business and they are watching all economic indicators even more diligently than before. No one ever knows for sure but, we believe we are positioning our PIM portfolios correctly for the environment at the current time. We will continue to make any changes we believe appropriate.
Be assured you are in the best hands possible.
Now, hopefully we can enjoy the next few weeks of official summer as well.
Global Insight WEEKLY
September 5th, 2019
Global Insight Monthly
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