Q1 Recap - A New Record

According to Dr. Elliot Eisenberg, March 21, 2024, marked the 625^th consecutive day of the inversion of the 2-10 yield curve (when the yield on the 2-year treasury bond exceeds that of the 10-year treasury bond).  In a normal environment, longer-term bonds pay higher yields but when the Federal Reserve is hiking interest rates to fight inflation, they move up the Fed Funds rate which causes short-term bonds to rise and pay higher interest rates than longer-term bonds.  They raise short-term rates in an attempt to tamp down inflation and slow the economy.  This breaks the record of 624 days of consistent yield inversion dating all the way back to 1978.

Why do economists and money managers closely follow the 2-10 yield inversion?  Because, dating back to 1970, every inversion has preceded a recession.  This is why many investors have been expecting a recession since July of 2022, when the 2-10 treasuries yields initially inverted, over 600 days ago.

Many market timers look at different factors to determine if they should “be in or out of the market.”  For those who rely on this particular factor, they have been out of or underweight the stock market for many months, some of which have been extremely positive.  This is another example of why timing the market is so difficult.  There are many indicators investors use in creating their market outlook, but none are foolproof. 

The economic cycle has not been suspended and a recession will occur at some point.  This is why our goal is always to remain balanced and diversified and focused on our clients’ long-term goals.  Why does the media give so much exposure to market prognosticators?  Because timing the market is sexy, constantly moving money around guessing what is going to happen can be exciting and entertaining.  At Bond&Devick we have been called many things, but not sexy, exciting, nor entertaining.  And that is perfectly fine with us.  We take our job seriously and remain laser-focused on providing comprehensive financial planning for our clients.  In the end, helping our clients meet their long-term goals and objectives is sexy, exciting, and entertaining enough.

Happy Spring to all of you,

The Bond&Devick Team