This morning, the much watched yield curve has inverted for the 2nd time with 10-year Treasury yields (2.27%) dropping below 3 month T-bill rates (2.36%). Many view the yield curve inverting as an early signal of recession. For those that view the glass as being half full, most people look for the 10 year vs the 2 year inversion and that hasn't occurred yet. Secondly, once the inversion takes place, the market often doesn't peak until months later. For those that view the glass as half empty, the inversion is a sign that the bull market is nearing an end.

10 minus 3

At Runnymede, we don't simply look at the yield curve but also over 50 other important variables that drive market conditions. We don't believe in a one-factor model. Taken on its own, this is a warning sign of increased volatility ahead and the bull market is likely on borrowed time.

The trade war with China will only cause more problems as it is increasingly likely to ripple through the global supply chain and slow economic growth. Not only did the yield curve invert in the US, but also in Mexico, Hong Kong and Canada. Japan, New Zealand and Singapore are also dangerously close to inverting.

There are times to be aggressive and times to be defensive; we continue to believe investors are best to err on the side of caution heading into the second half of 2019.