Wednesday August 14, 2019. “BIG NEWS” MARKETS DOWN TODAY………….
Two critical issues: Trump has basically lost the trade war with China, as he as delayed tariffs until December. Markets reacting negatively.
Second, we are seeing an inverted yield curve today. This typically predicts a recession, BUT that will not happen until the yield curve UN-inverts. That could be one to two years down the road. A link to the full article is below.
Finally: you should be diverting stocks INTO fixed income. At least 50% in preferreds and baby bonds is probably a good idea. The problem now is that most of these positions have appreciated to the point that it is difficult to find bargains. Go to this link for Core Portfolio:
(We did NOT get the price we wanted for PBY (that we talked about yesterday) but we may sell today on lower prices, depending on how it moves.)
Investors are now demanding higher interest rates on short-term debt than they are longer term debt, a phenomena known as an “inverted yield curve.” Economists often give the spread between the 10-year and the 2-year special attention because inversions of that part of the curve have preceded every recession over the past 50 years.
While the inversion is cause for concern, there is often a significant lag before a recession hits and an economic downturn ensues.
Data from Credit Suisse going back to 1978 shows:
- The last five 2-10 inversions have eventually led to recessions.
- A recession occurs, on average, 22 months following a 2-10 inversion.
- The S&P 500 is up, on average, 12% one year after a 2-10 inversion.
- It’s not until about 18 months after an inversion when the stock market usually turns and posts negative returns.
NOW IN OUR 7TH YEAR. NOTE TO NEW READERS: Before you buy anything we discuss here, GO to the Core Portfolio tab to see a CURRENT listing of holdings. This “free” blog is designed for investors seeking income by using preferreds, BDCs, REITs, baby bonds and corporate bonds. Don’t forget to hit the like button. Go Here For “About“