Earlier this month, the U.S. Treasury market spit out a historically reliable signal that the next recession is on the horizon: The yield on the 10-year Treasury note fell below the one for the 2-year Treasury, causing an inverted yield curve. Also troubling is that the yield on the 30-year bond fell to an all-time low. That means investors believe economic growth will falter and interest rates are headed lower.
“Are we heading for a recession? Will we eventually have one? Yes, of course. The question is, will it be within the next year, or year and a half?” says Jeremy Siegel, Wharton finance professor and markets expert. “Right now, outside of the [signal from the] yield curve, there are no real signs that we’re heading for a recession.”
Siegel is in good company. Former Fed Chair Janet Yellen recently said the inversion may be a “less good signal” now of a recession. She also doesn’t think the next recession is coming, although “the odds have clearly risen and they’re higher than I’m frankly comfortable with.” Siegel said most market experts he follows put the odds of a 2020 recession at one in three or a little bit higher.
Meanwhile, the stock market remains spooked by fears of an economic slowdown as the U.S.-China trade wars continue. “If there’s no agreement on the trade [talks] and there’s still threats of 10% and 25% [tariffs], I see no progress in the stock market for the year end,” Siegel says. “In fact, I would say it could be lower.”
Read more at Knowledge@Wharton.