What an inverted yield curve means for stocks, currencies, commodities, and real estate


Let’s look at how various markets react to yield curve inversions.

  1. S&P 500
  2. Gold
  3. Silver
  4. U.S. Dollar Index
  5. 10 year Treasury yield
  6. inflation-adjusted median sales price for New Homes (i.e. U.S. real estate)

What various markets do after the yield curve inverts

5 year – 3 year yield curve


Here’s what the S&P 500 does next after the 5 year – 3 year yield curve inverts for the first time in each economic expansion.

Here’s what gold does next after the 5 year – 3 year yield curve inverts for the first time in each economic expansion.

Here’s what silver does next after the 5 year – 3 year yield curve inverts for the first time in each economic expansion.

Here’s what the U.S. Dollar Index does next after the 5 year – 3 year yield curve inverts for the first time in each economic expansion.

*Notice how the U.S. Dollar index has a tendency to fall 2 years later.
Here’s what the 10 year Treasury yield does next after the 5 year – 3 year yield curve inverts for the first time in each economic expansion.

Here’s what the inflation-adjusted median sales price for New Homes does next after the 5 year – 3 year yield curve inverts for the first time in each economic expansion.

5 year – 2 year yield curve


Here’s what the S&P 500 does next after the 5 year – 2 year yield curve inverts for the first time in each economic expansion.

Here’s what gold does next after the 5 year – 2 year yield curve inverts for the first time in each economic expansion.

Here’s what silver does next after the 5 year – 2 year yield curve inverts for the first time in each economic expansion.

Here’s what USD Index does next after the 5 year – 2 year yield curve inverts for the first time in each economic expansion.

*Notice how the U.S. Dollar index has a tendency to fall 2 years later.
Here’s what 10 year Treasury yield does next after the 5 year – 2 year yield curve inverts for the first time in each economic expansion.

Here’s what the inflation-adjusted median sales price for New Homes does next after the 5 year – 2 year yield curve inverts for the first time in each economic expansion.

*Notice how U.S. real estate prices tend to fall 1.5-2 years later

10 year – 2 year yield curve


Here’s what the S&P 500 does next after the 10 year – 2 year yield curve inverts for the first time in each economic expansion.

Here’s what gold does next after the 10 year – 2 year yield curve inverts for the first time in each economic expansion.

Here’s what silver does next after the 10 year – 2 year yield curve inverts for the first time in each economic expansion.

Here’s what the USD Index does next after the 10 year – 2 year yield curve inverts for the first time in each economic expansion.

Here’s what the 10 year Treasury yield does next after the 10 year – 2 year yield curve inverts for the first time in each economic expansion.

Here’s what the  inflation-adjusted median sales price for New Homes does next after the 10 year – 2 year yield curve inverts for the first time in each economic expansion.

*Notice how U.S. real estate prices tend to fall 1.5-2 years later

10 year – 3 month yield curve


Here’s what the S&P 500 does next after the 10 year – 3 month yield curve inverts for the first time in each economic expansion.

Here’s what gold does next after the 10 year – 3 month yield curve inverts for the first time in each economic expansion.

Here’s what silver does next after the 10 year – 3 month yield curve inverts for the first time in each economic expansion.

Here’s what the U.S. Dollar Index does next after the 10 year – 3 month yield curve inverts for the first time in each economic expansion.

Here’s what the 10 year Treasury yield does next after the 10 year – 3 month yield curve inverts for the first time in each economic expansion.

Here’s what the inflation-adjusted median sales price for New Homes does next after the 10 year – 3 month yield curve inverts for the first time in each economic expansion.

*Notice how U.S. real estate prices tend to fall 1-2 years later

Conclusion: what a yield curve inversion means for the markets

For the U.S. stock market, a yield curve inversion isn’t an immediately bearish sign for stocks. Although a yield curve inversion preceeds most recessions and bear markets, the lead time is often long. Hence, it is not the holy grail of indicators for predicting recessions and bear markets. It is merely one of many tools to help investors and traders time recessions and bear markets.
It’s interesting how a yield curve inversion is often long term bearish for the U.S. Dollar. Perhaps that’s because it signals future weakness in the U.S. economy. As the U.S. economy weakens, Money Flow towards the U.S. slows down, thereby weakening the U.S. Dollar.
A yield curve inversion is also long term bearish for the U.S. real estate market on an inflation-adjusted basis. For those who aren’t aware, this is what inflation-adjusted U.S. real estate prices looks like. Real estate tends to perform poorly during economic recessions.

What is the yield curve inversion (for those who don’t know)

The yield curve looks at the interest rates of Treasury bonds with different maturities. During normal economic expansions, the yield curve slopes upwards to the right. Long term rates are higher than short term rates.

Not many people focus on the yield curve until it becomes “inverted”, which is when long term interest rates are lower than short term interest rates. This often happens when the many investors forecast economic and market problems ahead, so they buy long term Treasury bonds and push down the rates on these long term bonds.

In previous sections of this study we looked at what happens next to various financial markets when various parts of the yield curve become inverted for the first time in each economic expansion.
*It’s a well known fact that yield curve inversions lead economic recessions by approximately 6-18 months. For example, here’s a 10 year – 2 year yield chart, with recessions in grey.