Spooky Curve?
A topical discussion in many publications may have you “spooked”: the yield curve has been flattening. However, it is important to note that even if the yield curve does invert, equity markets may first deliver a “treat.” In fact, over the past few decades, investors who sold equities immediately after the yield curve inverted, in advance of an expected “trick,” would have missed out on material gains.

  • The yield curve is a powerful signal for markets and the economy. An inversion in the curve (negative spread between the 10-year and 2-year Treasury note yields) often signals a recession. However, it is also an early signal, with inversion historically occurring nearly two years prior to recessions on average. Thus equity investors, prior to these recessions, would have received an average 22% return through the following equity peak. 

  • Additionally, there is new evidence that suggests that other measures of the yield curve do a better job at forecasting recessions (see Alger on the Money “A New Curve?”). In fact, the signaling mechanism of the yield curve may be impaired when starting at very low levels of interest rates, similar to what has been experienced in the U.S.  

  • Experienced investors understand there are many ways to assess future market potential and the most successful investors understand that in the long run, individual company fundamentals are the most important factors to consider.


The views expressed are the views of Fred Alger Management, Inc. as of October 2018. These views are subject to change at any time and they do not guarantee the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.

This material must be accompanied by the most recent fund fact sheet(s) if used in connection with the sale of mutual fund shares. 

Risk Disclosure: 
Investing in the stock market involves gains and losses and may not be suitable for all investors. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Many technology companies have limited operating histories and prices of these companies' securities have historically been more volatile than other securities, especially over the short term. Technology companies may also face increased competition, government regulation, and risk of obsolescence due to progress in technological developments. 

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