(Bloomberg) Although the reversal of the yield curve is a warning sign of recession, it is generally followed by a rise in US stocks, according to strategists from Citigroup Inc.
Historically, US stocks have risen in the year after the reversal of the difference between yields on two- and ten-year Treasury bonds, as happened last week for the first time since 2019, according to a note from Alexander Saunders and his colleagues. However, yields are typically moderate, they said.
“Investors should expect lower, but slightly positive returns from stocks if the curve reversal remains slight,” the strategists wrote.
The S&P 500 and Nasdaq 100 indices rose in the last three weeks, but have swung in recent days as bond yields have increased and investors are focusing on an increasingly aggressive Federal Reserve. The worldwide bond settlement is extended on Wednesday, while stocks also fall in the face of the prospects of monetary conditions that are stricter than expected.
“Finally, US stocks fall in the third year, but they continue to outperform international markets,” the strategists said. “Bonds do well longer.”
Original Note:
Citi Strategists Say Curve Investment Tends to Signal Stock Gains
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