On average, it takes 22 months from a yield curve inversion until a recession hits. It takes 13.1 months for stocks to peak.

Average returns are 21.8% after inversions before stocks peak. It’s important to avoid assuming this cycle will be average. In 1978, it took 0.8 months from the inversion to the S&P 500 peak and in 1998, it took 22.3 months.

Many investors are willing to leave the 21.8% gain on the table to avoid a 50% loss in the next bear market. The problem with that logic is a 50% decline is far from a guarantee.

As of November, the Cleveland Fed’s recession indicator states there is a 20.3% chance of a recession in the next year.

There is a spike in volatility right before and after inversions. The steepening after inversions signals a recession, but it might be too late to sell stocks by then.

Yield curve versus stocks

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