The yield curve always shows warning signs when bearish risk increases.
As most inflation continues to eat away at our wallets, the Federal Reserve raises interest rates in an attempt to keep prices in check. We are not yet in a recession despite these signs, but according to a report released this morning by Wells Fargo economists, we are getting closer to “more likely.”
Although most of these economists believe that we are not in a recession yet, they estimate that one could start in the first quarter of 2023 and end in the fourth quarter of the same year. And the Wells Fargo model, which is based on the latest inflation data from the Consumer Price Index and forecasts recessions a year ahead, has accurately predicted recessions since 1980.
Treasury yields are also showing signs of a recession in most bond markets because a sell-off sent yields to their highest levels in more than a decade and the yield curve inversely deepened. The yield curve, which compares the yields of short-term Treasury bills with those of longer-term Treasury notes and bonds, is now the most inverted in at least two decades and suggests that investors are more pessimistic about the near future. It is generally considered a leading indicator of a recession.
Global government bond losses could be on course for their worst year yet since 1949, according to analysts at the United States Bank of America, and a note this week said that investor sentiment was “undoubtedly” the worst. and which is by far the worst since the 2008 financial crisis. And we may also face volatility in equity markets over the next few months, as the bank expects US stocks to not hit their lowest levels this year.
When the market is in a downward cycle, it is natural for everyone to be concerned and want to sell more before the stock drops further. However, depending on your time horizon and risk tolerance, waiting for market volatility may be more advantageous. It makes sense because very soon the sale could be closed at a loss.Share to Help