Winter is Coming… but When?
After a bruising final quarter of 2018, 2019 kicked off with a bang, with US Stock Markets finishing the first quarter up roughly 14% and US Bond Markets up nearly 3%. International Developed Markets and their less-developed emerging brethren also performed well, up 10.45% and 9.92% respectively. Unfortunately, those gains weren’t enough to push international markets into positive territory, and the 1-year performance on international equities remains negative.
Over on the debt side of the balance sheet, of notable importance, in late March the yield curve inverted for the first time since 2007. While most Joe-Six-Pack Main-Streeters won’t lose much sleep over this, historically an inversion in the yield curve, when short term bonds pay a higher interest rate than longer dated bonds, has been a reliable indicator that a recession is around the corner. Unfortunately for market timers, it could be a while before we reach that corner; according to Barrons, timing the market based on when a recession occurs post-inversion is difficult, with an average time to recession of 311 days after the inversion. Importantly, that’s only after the yield curve (specifically the 3 month t-bill and 10 year notes) remained inverted for 10 days.
Sleep well my friends, the curve normalized after just 5 days and you can now get a virtually insignificant 10 basis points (1 basis point is 1/100th of 1 percent) more annually by locking up your money for 10 years instead of 3 months!
For more on the importance of staying the course, read the opening to the attached 1st Quarter Market Update.