On Tuesday, for the first time since the height of the last recession in March, 2009, stock dividends were earning investors more than 30 year treasury bonds. This phenomenon occurred due to investors becoming frightened from the trade war and pouring their wealth into safer assets. Despite the yield curve inversion being a common sign for a recession, the continual slide of the 30 year bond yield (to 1.961%) benefits the equity market and allows investors that are attempting to acquire long term assets to reinvest into safer stock options.
The yield curve inversion could potentially be an extremely important facet to our current economy, especially with the US-China trade war scaring investors away from the stock market. Now that investors have motivation to reinvest their funds into stock options, there is the high possibility that we can witness a necessary rebounding of our previously expanding stock market. Furthermore, if the stock market is able to regain some footing, confidence can start to rebuild and our economy can continue on it’s path to aggressive growth.
Despite the hopeful benefits that the yield curve inversion provides, investors should still have some reservations. The only reason that the 30 year treasury bond rate has decreased is because the economy has also slowed growth. The trade war has inherently makes the stock market riskier and even more unpredictable, which could lead to massive losses for investors that are attempting to switch their long term assets from bonds to safer stocks.
Keith Knutsson of Integrale Advisors commented that, “The yield curve inverting does not show signs of a recession, but a huge possibility for investment within the stock market.”