Stocktake: Yield curve inversion doesn’t spell doom for stocks . . .yet

Well, it happened. The US treasury yield curve inverted last week, with two-year yields rising above 10-year yields for the first time since August 2019.

The inversion got much attention – understandable, given it has, as Bloomberg's John Authers notes, "long been taken as the best market-based recession predictor we have".

Still, stocks took the inversion in their stride. Complacency? Not necessarily. Firstly, some economists say it really may be different this time, saying yields have been distorted by the Federal Reserve’s massive bond-buying programme in recent years.

Others disagree, but the bigger point may be that an inversion is not a near-term timing indicator. Recessions can be some way off, as can market peaks. LPL Research looked at the last four yield curve inversions and found that on average, stocks rallied for another 17 months, gaining 28.8 per cent before peaking.