MINNEAPOLIS (WCCO) — The stock market fell sharply Wednesday, with the DOW, Nasdaq and the S & P 500 all down. The bond market prompted the plummet.
CBS News reports yields on the 10-year-treasury note fell below the 2-year note, signaling a yield curve inversion for the first time in more than a decade,
“I think most people think it’s a recipe at a fancy restaurant, the yield curve inversion. It sounds like a kind of pineapple upside down cake,” said Jim Cahn, chief investment officer for Wealth Enhancement Advisory Services.
In actuality, it’s a fancy term that could be a sign something bigger is on the horizon.
“When it inverts, that really tells us that the market is not optimistic about the future. We haven’t seen a yield curve inversion since 2007 and oftentimes, not always, these yield curve inversions precede a recession,” said Cahn.
CBS News reports a boiling trade war between America and China as well as a worldwide economic slump may have both contributed to the sharp drop.
“I’d say it’s a yellow flag and I’d say even if we knew we were going into a recession, it doesn’t mean sell your stocks. Be careful,” said Cahn.
Despite the numbers, Cahn says investors shouldn’t panic.
“Don’t run out and sell everything just because the market was down almost 3% today. That would be a mistake,” said Cahn. “The key is to be a long-term holder of stocks.”
He believes the Federal Reserve Bank might be a little out of step with the market, and action on their part could help this slowdown speed up.
“I do think one way around this conundrum of the inverted yield curve is for the Fed to cut interest rates at its next couple of meetings. I think we will see the yield curve normalize,” said Cahn.