The US Treasury Yield Curve is inverted, which means shorter term bond yields are higher than longer term bond yields, the inverted yield curve has been a reliable recession indicator over the last 70 years.
Recession on the horizon
This chart of the US Treasury Yield curve is foreshadowing a recession because the shape of it is inverted. When yield curve inversion happens, it is a near certainty the US economy will enter a recession within 18 months of this happening. The best thing you can do right now is invest in fixed income securities that are 0 to 2 years in maturity. This means owning a 1 year treasury note pays more interest than a 5 year treasury note. Once the 1 year treasury interest rate falls, investors will make profits on the market value of the bond. This is because the market value increases on current bonds when new bonds have a lower interest rate.
The only wild card to a 2020 recession narrative is if the Federal Reserve lowers interest rates. The stock market has priced in two rate cuts for 2019, but big banks like Goldman Sachs are pessimistic the Federal Reserve will cut and shock the market.
The stock market is beginning to show signs of weakness and indicators are saying the US economy has a high probability to enter a recession in 2020, you need to protect your investment portfolio to withstand a downturn in the stock market.
One-way you can protect portfolio gains is by purchasing option securities.Options allow you to purchase protection for your portfolio which protects the value should the market fall, while allowing you to participate to the upside should the market continue rising. Some people don’t know what an “option” is; however, over the last 10 years equity and index options contracts became more popular and allow you to protect your investment portfolio. This has opened a whole new market and universe of investment management strategies you can use to protect your portfolio.