Evidence shows that structural market declines / periods of tail risk have been accompanied by/in proximity to Treasury "yield spread inversions". Since 1950, periods of stock market risk have been identified by the alignment of 4 empirically defined variables : a) the S&P 500 price residing below its 10 period moving average (monthly basis) value on "June 30th"or "July 31" b) the YTD S&P500 return being negative into June 30th / July 31 c) variables a & b falling within "Presidential term years" 1, 3, or 4 ** d) the 3 month T bill yield being higher than the 10 year Treasury note yield (yield spread inversion) within 24 month proximity to variables a, b, & c ** 2nd or Mid term years are exempt from the process as their July - June returns ( and even forward 24 month returns ) have been predominately positive Signaling record : period. S&P500 bonds
7/1969 - 6/1970 -22.8% -3.7%
7/1973 - 6/1974 -14.5% +1.2%
8/1981 - 7/1982 -13.2% +20.1%
7/2001 - 6/2002 -18.0% +5.6%
7/2008 - 6/2009 -26.2% +6.9% FRED interest rate data even indicates a yield spread inversion as late as Feb 1930 - with the other variables aligned in July 1931 - leading to a 12 month loss of -66% and bond return of +3.8% Many of those periods have certainly been accompanied by "excessive valuation readings", yet in light of the high odds of a positive market return in the next 12 - 24 months ( 2026 being a 2nd or Mid Term year ) and a Treasury yield spread that has been 'normal" since Dec 2024, it's doubtful that a structural market decline is in the cards anytime soon.
Comments
Evidence shows that structural market declines / periods of tail risk have been accompanied by/in proximity to Treasury "yield spread inversions". Since 1950, periods of stock market risk have been identified by the alignment of 4 empirically defined variables : a) the S&P 500 price residing below its 10 period moving average (monthly basis) value on "June 30th"or "July 31" b) the YTD S&P500 return being negative into June 30th / July 31 c) variables a & b falling within "Presidential term years" 1, 3, or 4 ** d) the 3 month T bill yield being higher than the 10 year Treasury note yield (yield spread inversion) within 24 month proximity to variables a, b, & c ** 2nd or Mid term years are exempt from the process as their July - June returns ( and even forward 24 month returns ) have been predominately positive Signaling record : period. S&P500 bonds 7/1969 - 6/1970 -22.8% -3.7% 7/1973 - 6/1974 -14.5% +1.2% 8/1981 - 7/1982 -13.2% +20.1% 7/2001 - 6/2002 -18.0% +5.6% 7/2008 - 6/2009 -26.2% +6.9% FRED interest rate data even indicates a yield spread inversion as late as Feb 1930 - with the other variables aligned in July 1931 - leading to a 12 month loss of -66% and bond return of +3.8% Many of those periods have certainly been accompanied by "excessive valuation readings", yet in light of the high odds of a positive market return in the next 12 - 24 months ( 2026 being a 2nd or Mid Term year ) and a Treasury yield spread that has been 'normal" since Dec 2024, it's doubtful that a structural market decline is in the cards anytime soon.
Post: Market Indicators
Link to comment from July 26, 2026