The yield curve anticipates a next economic recession

Be very careful during this year when a new economic crisis or recession may come to light. This is later evidenced by the evolution of the yield curve, which reflects that it is incubating in the United States in a period of time no longer than two years. The first data that is reflected in this economic parameter is a factor as relevant as the fact that the differential between the 5 and 3 year bond has already been invested. A very significant sign of what may be in the markets from now on.

Another signal that the US yield curve is giving to small and medium investors is also very significant. It is none other than that the spread between 10 and 2-year bonds is at its lowest level since 2007. Another fact that financial intermediaries should undoubtedly pay attention to when choosing what measures to take in equity markets from of these moments. Yes, Ok undo positions On the Stock Market or, on the contrary, enter again to make your personal or financial capital profitable.

But what is in fact the interest rate curve that much of the specialized media talks about so much? Well, this groundbreaking investment figure is nothing less than the differential between profitability offered by the 10-year sovereign bond (long-term reference) of the North American country and the interest of the 2-year paper (short-term). Well, this sign of weakness in financial markets has lost 11 basis points this week. A level of quotation that had not been seen since 2007 and 2008. A period in which the last economic and stock market crisis developed, which affected the entire global world and, decidedly, the financial markets.

Relevance of the yield curve

The importance of this economic parameter is very high and is due to the high reliability in its evaluation. With a level very equivalent to that represented by the risk premium throughout the euro zone. Where, by way of example, a spread of a Spanish bond above 300 basis points may represent an eminent danger, both for the national economy and for the equity markets in this geographical area. Its evolution, therefore, is very equivalent between the data of its referentials. With the effects that all investors currently know.

This is one of the main reasons to be very vigilant about the yield curve in one of the most powerful economies in the world. Because it can give some other signal about what the way economies are going and consequently, also the role that financial markets will play in the coming months. With which, you will have a highly valid factor to make decisions in the financial markets. Not only variable income, but also fixed income, as has happened in recent years.

Risks of an upcoming recession

Whatever the case, the yield curve anticipates a new scenario that entails a bearish period for the equity markets in this geographical area of vital relevance to the world. From this general scenario, it is a fact that small and medium investors should not be taken by surprise, given that many financial analysts have warned of this opportunity in the financial markets. In this regard, it cannot be forgotten that equities in the United States had the best positive streak in many decades, where younger investors do not remember a period of so much profit in their portfolios.

Indices on the other side of the Atlantic have appreciated since 2012 in none other than the 90%, very high profits and that have turned the most aggressive investors into millionaires. Because there have even been stocks that have performed better than the general indices, with appreciations even above 100%. Something that has not been seen for some time and that has caused massive purchases in the financial markets. With a volume of recruitment that has also been very high.

Something unpublished until then

This unusual development in the US equity markets has led to these bullish positions having to be corrected. And since there have been no particularly significant corrections in between, it is not surprising that the trend in this equity market can change at any time, including with greater intensity than desired from the beginning. At any moment, there is one aspect that does not change at the moment and that is that it is no longer the right time to take positions in this equity market. It's no wonder the risks increase as the months go by.

Rate hike in the US

One of the triggers for the United States stock market to enter a bearish period is the fact that during 2019 there are new increases in interest rates. Even though this opportunity is partly ruled out by financial markets, it is not with respect to its intensity. And exactly this is the main fear of different financial agents and that before this opportunity they are undoing positions in the US stock market. Not surprisingly, last Tuesday the equities of this country fell by no less than 3% due to the perception of this new scenario.

Analysts are already giving greater importance to what the interest rate curve indicates and its announcement of a recession in the United States in a maximum period of two years. Despite the fact that the main macroeconomic data for the country remain frankly positive. Where he number of unemployed in the last twelve months it has been reduced to a level not contemplated by the most powerful economy on the planet. Although on the contrary, the country's growth continues at an enviable rate, as recognized by the most important economists in the country.

Repercussions on the old continent

Another aspect that is being clarified at the moment is the repercussion that this recession would have on the countries of the euro zone. It would not be as much as some institutions expected, much less in terms of the evolution of equity markets. The logical explanation must be sought in the evolution of the two financial markets, which has been slightly uneven with respect to the intensity of the price rises. Not in vain, the rise up in the stock markets of the old continent they have been much more moderate than in the American ones.

European investors have definitely not made their savings so profitable with this type of investment. To the point that it somehow leads paralyzed since the end of 2016. Specifically, the selective Spanish equity market index, the Ibex 35, which has lost positions in this period and had to visit levels not seen in recent years, such as the 8,600 points it has visited in recent years. October this year. Therefore, the possible falls in the stock market will be more nuanced, in the opinion of a large part of financial analysts.

Tips for acting in the stock market

In any case, there will be no other solution than to import a series of measures whose main objective is to protect our money from what may happen in the equity markets in the coming months. With the open taking of the following recommendations that we present in this post below.

• It will be a lot more selective to make up our next investment portfolio since from now on all stock market proposals will no longer be valid as they have been up to now.
• There will be no other solution than diversify investment in the stock market with that of other financial assets as a formula to obtain new capital gains from the operations carried out.
• Operations in the stock market must be Faster and opt for shorter tenure periods so as not to remain stuck in vacant positions.
• There is no doubt that this new period will bring new business possibilities They will have to be detected to take advantage of this scenario that may arise from now on.
• The intensity of falls it can be above all violent and therefore caution should be the common denominator in the actions of small and medium investors.
• It might be time to exit the financial markets and enjoy the profits accumulated so far. Beyond other technical considerations.
• From now on it will be much more complicated get returns offered by equities in recent years and therefore it will be necessary to live with this new scenario in financial markets.