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Ben Carlson

Yield Curve Inversions and Stocks Are a Toxic Mix

Every time since the mid-1970s that long rates have fallen below short rates, the S&P 500 has experienced a double-digit drawdown.
Caution: converging curves ahead.

Caution: converging curves ahead.

Photographer: Scott Barbour

Predicting when the next recession will begin is no easy task because the economy doesn’t operate on a set schedule. But there is one market relationship that’s been a reliable indicator over that past 40 years or so -- the spread between the two- and the 10-year Treasury yields.

The chart below shows that every recession since the mid-1970s (the shaded regions) has followed an inverted yield curve when the two-year note yields more than the 10-year: