Is The Stock Market Headed for A Significant Reversal?

​Some Market Analysts think so. The reason is one of the most reliable predictors of a stock market decline has been an “Inverted Yield Curve”. This is a condition in the bond market where interest rates on short term bonds are higher than interest rates on long term bonds. Normally, the opposite is true. Why should we care? Well, it’s an abnormal condition; and it has led to a Recession in the economy 6 times since 1970. In fact, it’s never not led to a Recession in that time period.
 
Maybe it’s wrong this time? The economy is bumping along at a healthy rate, which is good, and so it doesn’t feel like a Recession is immanent. The Fed has gotten inflation under control, which is also a good thing - for future prices. But has no effect on past price increases, which are here to stay.
 
The Stock Market is doing great also. Which also feels good. But keep in mind economists don’t know we’re in a Recession until 2 quarters after it starts. So, it’s always the bus we didn’t see coming. It’s always a surprise, and it often happens when things look great.
 
Market declines usually start before an economic downturn is evident. So, they’re unpredictable and usually quite steep: up to 50% in some cases. We haven’t had a decline like that in the markets since 2008-09. Many analysts think we’re overdue for something in the 25 - 50% range. If we hit a recession, it is likely we will see this happen.
 
What to do?  It makes sense to take steps to protect a significant part of your portfolio’s gains. There are ways to do this in today’s marketplace and they make a great deal of sense in the conditions we see today. Better safe than sorry. Questions or comments: Peter J Nagle [email protected].