This morning, we awoke to the financial entertainment news hysteria [trying to sell ads] that the Federal Funds interest rate yield curve briefly inverted for the first time since 2007.  Inverted yield curve does not cause a recession, but typically forewarns of a economic recession within eleven to eighteen months of the inversion.  Many of the financial entertainment network commentators and financial pundits appear to imply that the “world is dire” economically due to the inverted yield curve and talked incessantly that a ‘big-bad’ recession is on the horizon for the U.S.

Source: CNBC Squawk Alley

Inversion of the yield curve occurs when the longer term 10 year U.S. bond interest rate falls below the shorter 2 year U.S. bond interest rate.  Historically, a recession does not occur without an inverted treasure  yield curve.  However, investor should be aware that recessions are a normal part of the economic cycle.  And, no one, not even Noble Prize winning economist can predict if or when a recession will arrive on the doorstep of the U.S. economy. 

Even with an inverted treasury yield curve, the stock market can still go up as much as four present in the twelve months following an inversion since economic expansion tends to continue.  Currently, the U.S. economy continues to expand, although the rate of growth is slowing or decelerating.  

The news of the yield curve coupled with slowing economic growth in China and Europe, the turmoil in Hong Kong, and U.S. – China trade tensions have spooked traders causing equity markets, specifically the Dow and S&P 500, to tumble. 

Advice for investors is to stay invested for the long term and review your financial plan.  Eventually, there will be a recession…that is certain since it is a normal phase of the economic cycle.  Whether it is a direct result of today’s new regarding the inverted U.S. Treasury yield curve is anyone’s guess.