The inversion in the bond market that everyone is paying attention to is the 3-month and 10-year Treasury bond. happens when short-term rates go higher than long-term rates. It means that people in the bond market believe in the future long-term rates will go down so they are selling them to throw money into short-term bonds while they can get higher yields before the go away.
The 3/10 is an indicator historically forecasts a recession 12-18 months in the future when it starts.
However, many stock market commentators say do not worry about this, because if you sell your stocks you could miss out on further gains. They point out that when this happened in 2006 that the stock market went up for another year.
This chart highlights the previous times the 3/10 yield curve inverted.
The reality is that this inversion can also happen at times that create very sluggish stock market action and true topping action in a market so I think just being complacent about the inversion isn’t the thing to do – and there will come a time in the future where another stock market decline will happen.
We are in fact seeing some past popular winning stocks now turn into big market laggards, such as Facebook and NVDA.
The inversion is telling us that we are at the end of an economic expansion cycle and can now see a cycle of Federal Reserve interest rates on the distant horizon.
There are sectors that go up and benefit at this moment in the cycle that are the best to focus on for stocks picks and buying.
High dividend paying stocks are starting to go, such as REIT’s, utilities, and ones that benefit from more money printing such as mining stocks.
I did a video last week going over five top stocks.
Gold stocks are really starting to move now with many juniors getting bids.
The bottom line though is that we in a market in which sectors leadership is rotating thanks to changes that the yield curve inversion is telling us is happening.
To learn how to best identify these changes and adapt to them grab my book Strategic Stock Trading. I’m running a special giveaway deal for the book now while supplies last.
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