2yr Yield - FEDFUNDS "Inversion"
Over the past ~25yr, we've seen 3 instances of 2yr Yield dropping below the FEDFUNDS rate set by the Federal Reserve.
All 3 instances coincide with Recessions.
On this chart, you see the Yield Differential (Yellow), the SPX (Candles), along with the time of said "Rate Cycle Inversions" (Blue Bar Counts Below Price).
As you can see, all 3 previous instances lead to significant corrections and/or volatility with notable downside.
Not since the 2008 "GFC" have we seen an "inversion" of this magnitude. While correlation is NOT causation...It can be a "warning light" signaling 'Danger Ahead'. It is certainly forewarning us that the probabilities of a recession/down-turn are gaining momentum.
Yes, people have been calling for Doom n Gloom, "Top is In", Recession imminent... for a couple years now. And I am not recommending you sell everything and hide under a rock. What I am recommending however, is that you reduce leverage if you have any, perhaps lock in some profits while you're "on top", and head into the coming days/weeks/months with eyes wide open, alert to potential quick corrections when this wild ride inevitably 'ends'.
Each instance resulted in the "recent lows" being violated. If history rhymes this time, that could mean low 3k's incoming for SPX. COULD. Can your portfolio/strategy/mindset handle that kind of volatility/drawdown? Just some food for thought.
As always, good luck, have fun, and practice solid risk management.
Thank you for your time and consideration.
All 3 instances coincide with Recessions.
On this chart, you see the Yield Differential (Yellow), the SPX (Candles), along with the time of said "Rate Cycle Inversions" (Blue Bar Counts Below Price).
As you can see, all 3 previous instances lead to significant corrections and/or volatility with notable downside.
Not since the 2008 "GFC" have we seen an "inversion" of this magnitude. While correlation is NOT causation...It can be a "warning light" signaling 'Danger Ahead'. It is certainly forewarning us that the probabilities of a recession/down-turn are gaining momentum.
Yes, people have been calling for Doom n Gloom, "Top is In", Recession imminent... for a couple years now. And I am not recommending you sell everything and hide under a rock. What I am recommending however, is that you reduce leverage if you have any, perhaps lock in some profits while you're "on top", and head into the coming days/weeks/months with eyes wide open, alert to potential quick corrections when this wild ride inevitably 'ends'.
Each instance resulted in the "recent lows" being violated. If history rhymes this time, that could mean low 3k's incoming for SPX. COULD. Can your portfolio/strategy/mindset handle that kind of volatility/drawdown? Just some food for thought.
As always, good luck, have fun, and practice solid risk management.
Thank you for your time and consideration.
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