On June 27, 2018 we posted our first update to the April article on the inverted interest Yield-Curve and the correlations with the 2001 and 2008 recessions. Following the June article, a number of readers requested an update to the June projection. Frequent visitors to our website (dividendtotalreturn.net) are probably aware of our weekly Yield-Curve updates. For the rest of you, here is the latest information:
Using monthly data starting in 2014, the estimated inversion date was calculated to be between the lower and upper bounds of mid-2018 to early-2020. In an attempt to get a more precise inversion date, a trend-line was established for the data since the last significant peak in January 2017.
A closer review of the 2017+ data indicates an apparent break from trend occurring near the end of June 2018. Since June, the 2-year trend-line prediction has been slowly drifting later into the year. This drifting reflects a slowing in the descent of the Yield-Curve. Consequently, this 2-year trend-line is being used for calculating an updated lower bound date (March 21, 2019). The more recent 6-month trend-line of the weekly data is now being used to predict the Most Probable Date of Inversion (December 7, 2019).
Based upon the most recent rate of descent in the 10-YR to 2-YR spread, a Yield-Curve inversion has been graphically predicted to likely occur in late 2019:
If the curve does invert, there is still some good news. The S&P500 will likely peak some time after the curve inverts. Using the 10-YR to 2-YR spread, this lag time ranged between 6 and 16 months for the 2001 and 2008 recessions, respectively. Based upon our observations, this difference in lag time between the Yield-Curve inversion and the market top appears to be related to the depth of the rate curve inversion.
DTRS will continue to follow the progression of the Yield-Curve trends.
Conclusion: The Yield-Curve descent appears to be slowing. There are also indications in the news that the Fed may potentially slow the rate of raising interest rates. The best-case scenario is that the Yield-Curve does not invert anytime soon. If the curve does invert, start planning your market exit point. Either way, be watchful of the Yield-Curve in 2019.