Are We Due For A Recession?
Ever since the yield curve inverted (in US & Canada), it has been a constant theme in mainstream news that a recession is on the horizon.
You may have wondered how relevant this is to you and your portfolio...
Maybe you became concerned with the Q4 drop in the equity markets...
Keep reading below to see our views on this topic, or skip to the bottom to get an update on what's new with EEA Financial.
So what is the yield curve and why is it important?
Without boring you with the definition of the yield curve, you can view it here.
(The yield curve is said to be inverted when long term bond rates drop below short term bond rates of similar credit quality. Typically this is viewed as the comparison between the US 2Y treasury yield vs. the US 10Y treasury yield.)
The media has picked up on this because every recession in the US since 1955 has been preceded by an inverted yield curve. (See chart below)
If that's the case, you may be wondering - should we be divesting out of equities?
That's a good question. Here are some reasons why it may be too soon to bail on equities:
- The average time from yield curve inversion to recession is 16 months (1948-present)
- The average S&P 500 return from inversion to recession is 5.5% (1948- present)
- Average return during a recession is 0.1% (1948-present)
Source: See It Market, Shane Obata
Although leading economic indicators continue to show no signs of a recession for the tail end of 2019 and heading into 2020, we have now been in the longest bull market cycle in history and believe it's prudent planning to start de-risking portfolios. If you're a believer in cycles (like us), it makes sense to start preparing for the inevitable. If the market does dip in the next few years we can reduce our risk by shifting out of equities and into shorter-term fixed income instruments.
We've been meeting with clients since earlier this year to start transitioning portfolios to a more defensive stance and will continue to do so as the market climbs. Look out for our e-mail/phone call if we haven't already been in touch.
What Else Is New?
In other news, our website is now up and running and you can check us out at eeafinancial.com. We have also posted 3 blogs on our website, with the following topics:
- Key's to Successful Debt Management
- Top 15 Money Management Tips
- How to Save Money
We have a couple more exciting items to bring in the next couple of months, so stay tuned for more!