SPRINGFIELD, Mass. (WWLP) – For the last decade or so, August has consistently been the worst month for the stock market, and on Wednesday, a drop in the Dow has traders thinking this year won’t be any different.
The Dow saw its worst drop of 2019 Wednesday, plunging 800 points, the Dow’s fourth-largest drop ever.
The Dow dove because of recession fears sparked by a so-called “Inverted Yield Curve.” That’s when yields from the 10-year treasury note dip below yields for the two-year bond.
Mark Teed, a financial advisor with Raymond James, broke that down. He told 22News, “The short-term interest rates are higher than the long-term rates. That generally signals something is wrong in the economy.”
This flip, or “inverted curve,” has preceded every economic recession in the past, triggering major sell-offs.
The drop of Dow has left many local residents questioning the stock market like Emma Lipinski of Southwick. She told 22News, “It’s so unpredictable, and if you’re uneducated about it, you’re not going to know what to do.”
But, Teed said you don’t want to ditch all of your stocks so fast following this inverted yield curve. “Means that something is going on in the long end that people think growth is going to slow. We’re not buying that totally.”
If the Dow’s drop has you wanting to divest your stocks, don’t do anything rash. Put some real thought into it first.
Teed added that you should invest wisely and look to oil prices as an indicator of the market.
“Look at the markets, think that there is no inflation, think oil prices are down a little bit, inflation is down,” Teed advised. “That should be good for the stock market in the long term. So long term could be anywhere from a year to ten years, but, if you’re an investor, stay put.”
Credit Suisse looked at these inversion incidents going back to the ’90s, and found when they did signal a recession, on average, they occurred around 22 months later.