Just as sure as night follows day, the Wall Street economists can’t react fast enough to the current U.S. Treasury inverted yield curve. Anyone who studies the economy for a living can’t resist the opportunity to predict the next great recession.
An inverted yield curve took place for the first time on Wednesday, August 14th. This was the first time that the yield on the 10-year U.S. 2-year Treasury note was briefly higher than the yield on the 10-year U.S. Treasury note.
In English, long-term bond yields dropped below short-term bond yields. Why are the economists suddenly up-in-arms? Because an inverted yield curve has preceded every recession since 1956.
Wednesday’s inverted yield curve was the first time this event took place since 2007. If you can remember the last great stock market correction of 2008-2009 then you will realize the significance of this yield curve event.
World-wide economy is slowing. This is especially true of the slowdown in future corporate earnings. Large institutional investors have begun to sell their stocks and buy more and more long-term bonds.
It’s all about supply and demand. The demand for long-term U.S. Treasury bonds has been greater than the available supply. Long-term bond yields have gone up in price and down in yield; most recently, down in yield lower than short-term bonds. That event is called an inverted yield curve.
The biggest investors in the world are not optimistic about the near-future health of economies around the world. They are seeking the safest places available to park their recent stock market profits.
More important than an inverted yield curve now is how you use this current historical event to improve your company 401(k) retirement plan account investment management decisions.
You need to determine how much money you are prepared to lose if the stock market correction accelerates from here. How much of your year-to-date 2019 stock market investment gains are you willing to risk?
You are most likely up at least 10% year-to-date in your company 401(k) retirement plan account. That is especially true if you add in your individual contributions and your company-matching contributions this year.
In most of the years of your working career, a 10% annual investment return would be fantastic. In fact, I bet you would have signed up for a guaranteed 10% investment return on the first day of 2019.
Now you have to make the investment management decision in order to preserve those 2019 investment gains.
You don’t have to “sell everything” now. But you do have to sell any mutual funds you currently own in your company 401(k) retirement plan account that are falling at a faster rate than the overall stock market averages.
The stock markets are going on sale. We don’t yet know the final sale discount prices. The only thing for sure, you have to have the money market balance ready to take advantage of the lower prices coming soon.
Ric Lager
Lager & Company, Inc.
