Inverted yield curve: not a sell signal

Chart of the week

An inverted yield curve is often seen as a leading indicator of recession. Although sometimes the case, there can also be a substantial lag between curve inversion and the onset of recession. In the last cycle, the curve inverted at the start of 2006, almost two years before the US officially entered recession.

Equity markets tend to trade lower ahead of recessions, so should we take this curve inversion as a sell signal for equities? History shows that the S&P actually rose in the two years following the last four curve inversions: only in 1969 and 1973 did equities trade lower afterwards.




Based on this analysis, we do not think the curve inversion seen from 22–28 March warrants scaling back on exposure to equities.

A rebound in weekly jobless claims would, in our view, be a more reliable indicator of any imminent US economic recession. Yet, having risen for several months, jobless claims numbers actually turned back down in the last week of March to reach a 49-year low. This, we believe, indicates that the US recession is still quite a way off.


The opinion expressed above is dated April 5th, 2019, and liable to change.

This document is not pre-contractual or contractual in nature. It is provided for information purposes. The analyses and descriptions contained in this document shall not be interpreted as being advice or recommendations on the part of Lazard Frères Gestion SAS. This document does not constitute an offer or invitation to purchase or sell, nor an encouragement to invest. This document is the intellectual property of Lazard Frères Gestion SAS.