The Predictive Yield Curve
Most experts believe that it’s not a question of will but when the market will take corrective actions. In a recent seminar with our good friend, Chris Thompson, at Wells Fargo Financial, some insights were offered that might shed some light on what we can expect.
With the Federal Reserve turning decidedly dovish regarding the monetary outlook, we think that the rate hike cycle likely has come to an end. However, some market participants now are concerned that the yield curve inversion could signal impending US economic weakness ahead. The Treasury yield curve has been a powerful predictor of recession in past economic cycles.
While we believe that economic growth will continue at a moderate pace, the risks are building that the economic expansion may slow more than expected. We are at a key inflection point, and we believe that the yield curve merits close monitoring.
So, what about the Yield Curve?
The yield curve is essentially the difference between shorter and longer-term interest rates. While it is a simple concept that often is shown graphically, the yield curve captures investors’ attention, because it has a story to tell. The yield curve has inverted before each of the past six recessions. A Yield Curve Inversion is where the Short-Term Interest Rates move above the Long-Term Interest Rates. In other words, it is a better investment to invest in a short-term product than a long-term product. What!?!?! Right.
Yield Curve Inversion is an important forecasting tool. Yet, in and of itself, it does not cause a recession. While the yield curve can help to diagnose a problem in the economy, it is not foolproof as it does not pinpoint exact timing, or how fast conditions my change. It does not necessarily signal when investors should immediately reduce portfolio risk.
In fact, equity markets sometimes can continue to perform quite well after a Yield Curve Inversion occurs. The Yield Curve Inversion can grab media headlines and become a focus for investors. While the Yield Curve may define an impending downturn in the market, it doesn’t mean you need to stop what you’re doing. Just be aware and keep vigilant on the Market as a whole.
Parker Associates works extensively on understanding your market, your consumer, and your goals. We don’t take guesses, we take the time and commit the resources to researching the market and the consumer to make sure we get it right. We are YOUR advocate by being the CONSUMER’S advocate.
Spend time looking at what you are trying to acquire, develop, or sell to learn how you can improve the success of what you are offering. Parker Associates helps understand the consumer by answering WHO will buy, WHAT they will buy, and HOW they will buy it. When the research is completed and the analysis is done, having the answers to these questions will reveal what will provide the best success for your project. Keep asking WHO, WHAT, and HOW and keep developing to fit the need.
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David WB Parker is a principal of Parker Associates of Jacksonville, Florida, marketing consultants to the real estate industry; President of PTC Computer Solutions, IT Specialist, and an active real estate sales professional with Barclay’s Real Estate Group based in Jacksonville, FL. He can be reached at 904-607-8763 or via email firstname.lastname@example.org.