Yield Curve Roll-Over is Bullish

The Yield Curve is rolling over. Steep yield curves are bullish for stocks, but some real money is made in bull markets during the move from a steep yield curve to shallow one. Historically, it has marked the point where investors are beginning to become more comfortable with risk again; it marks the road that travels from the town of fear to the city of greed.

This table shows how market returns look after periods where the yield curve was as steep as it is today and is below its 12 month average. Stocks returned 13.71% over the ensuing 12 months compared to a 7.30% average 12 month return since 1974. Stocks were up in 88% of instances with a maximum decline of 5.8% over the following 12 months.

Mark Dodson, CFA