The countdown to a recession has started. The 2-year and 20-year yield curves have finally been uninverted! This is a sign the market is getting more fearful of the 2-year economic horizon than the 20-year.
Over the last thirty years, the final step before a recession is that the yield curve UNinverts just before the economy in the US takes a nosedive into recession. For investors all around, this should stand as a warning.
The first warning was when the curve inverted.
The second is when the yield curve UNinverts (first the 20-10, then the 10-2, and finally the 3-month- 2-year curve).
The last warning before the recession hits is the unemployment rate starts to increase. Higher unemployment is a hallmark of any recession because as jobs are lost, people have less to spend. Hence, they buy less, reducing the economic activity or GDP and driving the economy into a recession.
So, where does the US stand currently as far as unemployment goes? Well, since February, we have seen a definitive uptrend in unemployment. It's still at a relatively low level of 3.8%. We've seen higher highs and higher lows, showing us something is happening, so we need to watch this closely.
How are we positioning for a recession?
Our Discover Done investment method has prepared us well for a time like this; we are positioned primarily in cash and treasuries now, with increasing holding in stock (as the market declines, our stock holdings increase). As the fear of an economic downturn sets into the market, people will start moving money out of stocks and into the safest asset classes: US government treasuries and cash (USD), which are paying handsome returns of over 5%, I might add.
Disclosure
This information is intended for educational purposes only and is only opinions of market observations but does not constitute individual investment advice or recommendations. Before making any investing decisions, please do your own research or consult a financial advisor where necessary.
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