Stocks tumble amid possible warning sign of recession

Stocks tumble 800 points, treasury bond market sends recession warning

MEMPHIS, Tenn. (WMC) - Stocks took a tumble on Wednesday, with the Dow Jones falling 800 points amid growing fears — and a possible warning sign — of a recession.

Experts say it was the result of an "inverted yield curve" in government bonds, which is when short-term investments start paying more than long-term ones.

"In this situation, a two-year bond yielding higher than the 10-year," said David Pickler, president and CEO of Pickler Wealth Advisors. "In fact, every time this has happened in modern times over the past 25 to 30 years, it has absolutely predicted that a recession would come within about two years."

Pickler says stocks often grow, by 18 percent on average, for about 18 months following an inversion.

Recessions, if they develop at all, historically happen about 12 to 24 months after the inverted yield curve appears.

Pickler says what happened Wednesday could be an anomaly; he says it’s just too early to know.

"This does not necessarily mean that you know that Henny Penny, the sky's falling, that the markets are going to be falling for the next two years," said Pickler. "But it does indicate that there's at least now a greater risk that the U.S. economy could be going into recession sometime over the next two years."

Pickler says global interest rates and the U.S. trade war with China are adding to concerns about a recession.

He says while most people shouldn't panic, it is something to watch.

"We still feel that our economy is very, very strong, and probably will continue to be strong for the foreseeable future," said Pickler. "But recessions are natural part of any economy in any economic cycle. We are going to have recessions in our future."

Pickler said if a recession does happen, it likely would be a moderate one -- nothing like 2008.

He says if you have a 401(k) or other investments, it’s important you stay committed to a long-term strategy and not panic with the ups and downs of the market.

Copyright 2019 WMC. All rights reserved.