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A yield curve inverts when long-term interest rates drop below short-term rates, indicating that investors are moving money away from short-term bonds and into long-term ones. This suggests that the market as a whole is becoming more pessimistic about the economic prospects for the near future . When looking at inverted yield curve, it can be any pair of long-term interest rates and short-term interest rates. In this article, we will look at the inverted yield curve between 10-year and 2-year treasury bond yields . Figure 1.  SPY Monthly Chart (Courtesy: stockcharts.com) Inverted Yield Curve Precedes the Recession The Fed's ongoing rate hiking will eventually trigger the next recession. Historically, an inverted yield curve - the difference between 10-year and 2-year bond yields - has been one of the single-best leading indicators of an impending downturn . Figure 2. Inverted Yield Curve Precedes the Recession The Slope of the Yield Curve Conceptually, the slope of the yield c...

In this article, we will cover what a market bottoming process looks like and various measures (i.e., rule of 20 , breadth thrust , etc.) to look for. Also read the below companion article: Investment—Finding A Market Bottom Market Bottoming Process According to Ned Davis Research (NDR), the stock market needs these 4 things to happen before it can find a bottom and starting moving higher again: [1] Oversold The first step is for the market to fall to deeply oversold levels. By several objective measures, the market can be described as oversold. Rally At some point, the sellers become exhausted , and the market posts a multi-week rally. Importantly, look for broad participation on rallies , including an expanding percentage of stocks above their short-term moving averages and upside volume. Note that the average bear market rally after a waterfall decline like the market is currently experiencing lasts a median of 25 days with gains of 14% (as of 05/24/2022) . Retest Most post-waterf...

Finding a market bottom is not as straightforward as you might hope, it's a complicated process.  For example,  Thomas Lott —a former hedge fund portfolio manager—said that he uses multiple approaches: We analyze yield curves, technical data, prior bear markets and corporate earnings among other metrics looking for signs of a bottom. In this article, we will list some ways to identify a potential market bottom and start with  Marko Kolanovic's  playbook first. Marko Kolanovic Based on JPMorgan's Marko Kolanovic , if you believe stock market will transform into something bigger than just a bounce, then consider the following plays according to the investment bank:  Longs in small-caps (P/E ratio is below Lehman bankruptcy and peak COVID)  Longs in Biotechs (~1/3 of the companies trade below cash)  Long China (reopening and stimulus are powerful tailwinds), including Tech/Internet  Long Cyclicals vs. Short Defensives  High Beta Growth, incl...