Dropping stock market, bond market creates concerns of recession

Updated: Aug. 15, 2019 at 5:50 PM CDT
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LAKE CHARLES, La. (KPLC) - On Wednesday, the Dow Jones dropped about 800 points.

That’s because stock market investors were watching the bond market. Normally, short term bonds, like two-year bonds, have lower rates of return than longer term bonds, like 10-year bonds.

On Wednesday, two-year bonds were paying better than 10-year bonds for a short amount of time. That’s a sign that investors are worried about long term health of the stock market, and want a guaranteed return on their investment.

“What should be making more than the other is switched, it’s inverted," Sam Hebert said. "And that’s just an indicator that the view of down the road for a while is not rosy.”

Sam Hebert with Sam Hebert Financial group said the word ‘recession’ is coming up because if you look at the past times the bond market yield curve has been inverted, it’s been a consistent predictor of falling confidence in the economy.

“That’s been the history," Hebert said. "That when bonds do an inverted yield curve, which basically just means they’re not doing very well, that it usually is a market that we’re going to go into a recession.”

However, he also noted that stock markets are known to be volatile in election years, and he said the United State’s trade war with China can also be to blame.

As for what that means for you, Hebert said it’s not time to panic, but this is a good moment to take a look at your investments, and if you need to reevaluate the level of risk you’re taking.

“When I’m discussing with a new investor about the market, if you’ve got a baby roller coaster, and you’ve got a big boy scary roller coaster," Hebert said. "It’s volatility. So, our history of America is we’ve always managed to make money in the market, that it comes back. It’s just going to scare the heck out of you.”

He said if the money you’re investing can stay in the market for another 10+ years, then you’re probably okay to leave it.

But, if you’re going to need that money sooner, it may be time to look into low-risk investments, or diversify where you’re investing your money.

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