To age in home, or not to age in home: That is the question many retirees eventually face. One major determining factor is whether they can afford to move into a senior community offering living assistance and nursing care if necessary.[Read more…]
On Monday, December 3, the U.S. Treasury Yield Curve inverted for the first time in over a decade. Just one day later, the Dow fell 799 points (3.1 percent), with the S&P 500 and Nasdaq also finishing down (3.2 percent and 3.8 percent respectively).1
The yield curve inversion occurred as the yield on the five-year note hit 2.83, one basis point lower than the three-year note’s yield of 2.84. (If you’re not familiar with basis points, 100 basis points equals one percent. One basis point equals .01 percent.)
What exactly is the U.S. Treasury Yield Curve and how does its inversion affect investors? The Treasury Department sells 12 types of securities: bills in durations of one, two, three and six months; Treasury notes in durations of one, two, three, five and 10 years; and 30-year bonds. A yield is the return an investor realizes from a fixed-income security, which includes the 12 securities offered by the U.S. Treasury.
In a growing economy, the longer the maturity of the security, the higher its yield. This is due to its duration risk; the longer the security is held, the more sensitive it is to interest rate changes. A yield curve shows the spread between yields for each type of security. The yield curve is normally an up-sloped shape, somewhat like a capital U.
When shorter-term security yields surpass long-term security yields, the yield curve turns upside down. The inversion is caused by predicted interest rates; if interest rates are forecasted to be lower in the future, investors purchase more long-term bonds in order to lock in their higher rates now. In response to the increase in demand, the price for long-term securities goes up and yield goes down. The opposite is true for short-term securities, where yields are being pushed up due to decreased demand. The curve changes shape as the relationship between short-term and long-term yields changes.2
An inverted – or negative, as it’s sometimes called – yield curve is often a predictor of a lurking recession; the yield curve has inverted ahead of the past seven recessions. However, while the inversion often accurately predicts a turning point, a recession doesn’t always follow immediately on its heels. For example, the yield curve inverted in March 2006, and the first pangs of the following recession weren’t felt until December 2007.3
Even though there is frequently a gap between an inversion and a recession, some analysts are tying Tuesday’s market drop to investors who are nervous about the inverted yield curve.4 Although we can’t say for sure if this is a turning point in the current business cycle, the inverted yield curve tells us that investors aren’t optimistic about the economy in the near future.
1 Matt Egan. CNN Business. Dec. 4, 2018. “Dow plunges 799 points on trade, slowdown fears.” https://www.cnn.com/2018/12/04/investing/stock-market-today-dow-jones/index.html. Accessed Dec. 5, 2018.
2 Investopedia. “Inverted Yield Curve.” https://www.investopedia.com/terms/i/invertedyieldcurve.asp. Accessed Dec. 5, 2018.
3 The National Bureau of Economic Research. “US Business Cycle Expansions and Contractions.” https://www.nber.org/cycles.html. Accessed Dec. 5, 2018.
4 Kevin Kelleher. Fortune. Dec. 4, 2018. “An Inverted Yield Curve, a Predictor of Recessions, Has the Stock Market Spooked. http://fortune.com/2018/12/04/stock-market-inverted-yield-curve-are-we-in-a-recession/. Accessed Dec. 5, 2018.
This content is provided for informational purposes only. The third-party information and opinions contained herein, have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by AE Wealth Management.
Once again, Safe Harbor Financial Services and our clients are helping to bring Christmas cheer to the many people in our area with special needs– the elderly, children separated from their parents and especially veterans. We’ve teamed up again this year with Fox 10 and Volunteers of America to collect gifts at our office as part of 10 Caring Gifts. We’d love your help! [Read more…]
Safe Harbor Financial Sponsors Veterans Day BBQ
Be sure to mark your calendars for an outstanding Veterans Day BBQ and entertainment lineup at the American Legion Post 199 in Fairhope, AL. We love our veterans and we love to sponsor their meals at this annual event! BBQ chicken or pulled pork and all the fixings will be on sale starting at 11am until it runs out. These are huge plates of food and they go quickly so bring the family and get there early. Eat inside, find a spot at one of the many picnic tables on the beach, or bring your own chairs. Later in the day Joe the Burger Guy will be on the grill on the beach and there will also be a food truck. No one’s going hungry! Local favorite singer-songwriter, Grayson Capps, will entertain the crowd at 4pm on the beach stage as the sun sets over Mobile Bay. Plan to spend a great afternoon and evening with us on the beautiful grounds and beach at the American Legion.
Start the day with the Fairhope Veterans Day Parade at 10 am which begins and ends at the Fairhope Civic Center. Right after the parade bring the family to the American Legion for a stellar family day of BBQ, family fun on the beach, the sunset, and music by Grayson Capps. Meet the voices you hear on the radio every week- Jim Byrd, Biff Hamel, and Vicki Miller too. See you there!
Veterans Day Schedule:
10am: Fairhope Veterans Day Parade
11am: BBQ at the American Legion – BBQ Chicken (1/2) or Pulled Smoked Pork, Beans and Slaw. $12 a plate.
4 pm (time change): Grayson Capps on the beach
4:57 pm: Sunset over Mobile Bay