( HINT: Click-and-drag left-to-right on a chart to zoom in to a specific date range. Double-click on a chart to zoom back out. )
Yield Curve as a Stock Market PredictorNOTE: In our opinion, the CrystalBull Macroeconomic Indicator is a much more accurate indicator than using the Yield Curve to time the stock market.
This chart shows the Yield Curve (the difference between the 30 Year Treasury Bond and 3 Month Treasury Bill rates), in relation to the S&P 500. A negative (inverted) Yield Curve (where short term rates are higher than long term rates) shows an economic instability where investors fear recessionary times ahead, and can dissipate the earnings arbitrage within commercial banks.
Because of the unknowable lag or market response times, Yield Curve studies have been marginally effective in stock market timing systems. But an inverted Yield Curve has been a precursor to 7 of the last 7 recessions. Note that the last Yield Curve inversion was well before the bursting of the housing bubble, the Lehman Brothers bankruptcy, or the stock market crash. The Yield Curve deserves attention from all stock market investors.