Be very careful during this year in which a new crisis or economic recession may come to light. This is evident after the evolution of the yield curve in which it is reflected that it is being incubated in the United States in a period of time not exceeding two years. The first data that is reflected in this economic parameter is a factor as relevant as the fact that the differential between the 5 and 3 year bond has already been invested. A very significant signal about what can be in the markets from now on.
Another signal that the US yield curve is giving to small and medium investors is also very significant. It is none other than that the spread between 10 and 2-year bonds has been at its lowest since 2007. Another piece of data that financial intermediaries should undoubtedly take into account when deciding what measure to take in equity markets from these moments. Yes OK undo positions on the stock market or on the contrary to enter again to make your personal or financial capital profitable.
But what is actually the interest rate curve that a large part of the specialized media is talking about so much? Well, this innovative figure for investment is nothing less than the differential between profitability offered by the 10-year sovereign bond (long-term reference) of the North American country and the interest of the 2-year paper (short-term). Well, this sign of weakness in financial markets has lost 11 basis points this week. A level of quotation that had not been seen since 2007 and 2008. A period in which precisely the last economic and stock market crisis developed that affected the entire global world and of course the financial markets.
Importance of the yield curve
The relevance of this economic parameter is very high and is due to the high reliability in its assessment. With a level very similar to that represented by the risk premium throughout the euro zone. Where, for example, a Spanish bond spread above 300 basis points may represent an eminent danger, both for the national economy and for the equity markets in this geographical area. Its evolution, therefore, is very similar between the data of its referentials. With the effects that all investors know at this time.
This is one of the main reasons to be very attentive to the yield curve in one of the most powerful economies in the world. Because it can give some other signal about what the way the economies are going and as a consequence, also the role that financial markets will play in the coming months. With which, you will have a highly valid factor to make decisions in the financial markets. Not only from equities, but also from fixed income, as has happened in recent years.
Risks of an upcoming recession
In any case, the yield curve anticipates a new scenario that implies a bearish period for the equity markets in this geographic area of vital importance for the world. From this general scenario, this is a fact that small and medium investors should not be caught off guard, since there have already been numerous financial analysts who have warned of this possibility in the financial markets. In this sense, it cannot be forgotten that equities in the United States have had the best positive streak for many decades, where the youngest investors do not remember a period of so many and so many gains in their portfolios.
The indices on the other side of the Atlantic have appreciated since 2012 in nothing less than 90%, very high profits that have made the most aggressive investors millionaires. Because there have even been stocks that have performed better than the general indices, with appreciations even above 100%. Something that has not been seen for a long time and that has led to massive purchases in the financial markets. With a volume of recruitment that has also been very high.
Something unprecedented until then
This unusual fact in the American stock markets has led to these bullish positions having to be corrected. And since there have been no corrections of special relevance in between, it is not surprising that the trend of this equity market can change at any time, even with greater intensity than desired from the beginning. At any time, there is one aspect that is unchanging at the moment and that is that it is no longer the right time to take positions in this equity market. Not surprisingly, the risks are increasing as the months go by.
Rate hike in the US.
One of the triggers for the United States stock market to start a bearish period is the fact that during 2019 there are new increases in interest rates. Although this possibility is partly discounted by the financial markets, it is not so in terms of its intensity. And precisely this is the main fear of the different financial agents and that before this possibility they are undoing positions in the US stock market. Not in vain, last Tuesday the equities of this country fell by no less than 3% due to the perception of this new scenario.
Already, analysts are giving greater relevance to what the interest rate curve indicates and its announcement of a recession in the United States in a maximum period of two years. Despite the fact that the main macroeconomic data for the country are still frankly positive. Where the number of unemployed in the last twelve months it has been reduced to a level not contemplated by the most powerful economy on the planet. While on the contrary, the growth of the country continues to an enviable march, as recognized by the most important economists in the country.
Repercussions on the old continent
Another aspect that is being clarified at the moment is the repercussion that this recession would have on the countries of the euro zone. It would not be as much as expected by some organizations and much less with regard to the evolution of equity markets. The logical explanation must be sought in the evolution of the two financial markets, which has been slightly uneven in terms of the intensity of increases in share prices. Not in vain, the upward climb in the stock markets of the old continent they have been much more moderate than in the American one.
Of course, European investors have not made their savings so profitable with this type of investment. To the point that in a way it leads paralyzed since the end of 2016. In particular, the selective Spanish equity market index, the Ibex 35, which has lost positions in this period and has had to visit levels not seen in recent years, such as the 8.600 points that it has visited in recent years. October this year. For this reason, the possible falls in the stock market will be more nuanced, in the opinion of a large part of financial analysts.
Tips for acting on the stock market
In any case, there will be no other solution than to import a series of measures whose main objective is to protect our money from what may happen in the equity markets in the coming months. With the open taking of the following recommendations that we present in this article below.
- It will be a lot more selective to make up our next investment portfolio, since from now on all the stock market proposals will no longer be valid as they were up to now.
- There will be no other solution than diversify the investment in the stock market with that of other financial assets as a formula to obtain new capital gains from the operations carried out.
- Transactions on the stock market will each time have to be Faster and go for shorter tenure terms so you don't get caught up in open positions.
- There is no doubt that this new period will bring new business opportunities They will have to be detected to take advantage of this scenario that may arise from now on.
- La intensity of falls it can be especially violent and for this reason caution should be the common denominator in the actions of small and medium investors.
- It may be time to exit the financial markets and enjoy the earnings accumulated up to now. Beyond other technical considerations.
- From now on it will be much more complex get the returns offered by equities in recent years and therefore it will be necessary to live with this new scenario in the financial markets.