Treasury Yield Curve Inversion Signals Impending Recession Risk, Though Timing the Market Remains an Inexact Science
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The 10-year and 3-month Treasury yield curve has inverted before every recession since 1969, and it inverted 14 months ago, predicting a recession within 2 months.
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Past recessions have correlated with sharp stock market declines, with the S&P 500 falling 34.5% on average during recessions since 1969.
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The current yield curve inversion could be a false positive, like in 1966, meaning no recession occurs and stocks could keep rising.
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Even if a recession hits, it's impossible to time the market correctly by selling, as no one knows the duration or severity of declines.
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The prudent strategy is to stay invested in stocks focused on growth and reasonable valuations, though recession risk means preparing through defensive positioning.