Stores sectors to buy when the bond market flashes a recession signal

On Friday, the US yield curve was" inverted "- meaning the interest rate on 3-month government tax rose over the dividend on the 10-year note. Historically, this means that a recession is on the horizon.

The last seven times the yield curve invaded, except for a 2-week inversion in 1998, the US economy went into recession every single Time within 15 months, according to Credit Suisse data. 19659004] "Historically, investors have often tried to give reasons why things are different this time and have often been proven wrong," said Credit Suisse research analyst Andrew Garthwaite in a note to clients Tuesday.

Shares may still have a little more room for 6 months after the yield curve is reversed, it is typically when stocks peak, Garthwaite said, during the three months following an inversion S & P 500 rose by an average of 4 percent and was up 75 percent nt of ten But on a longer time horizon ̵[ads1]1; 18 months out – S & P was down on average 8 percent and only 38 percent of the time.

Nevertheless, some sectors do better than others in that environment. In the first three months after the inversion, insurance and industrial shares show the strongest medians' performance. Semiconductors and consumer goods are historically the largest lagoons.

One year after the yield curve is reversed, it is a clearer split. Defensive stocks such as health care equipment, medicines and insurance historically exceed the 12 months after the dividend. A defensive stock is something that has constant demand for products and is not typically correlated with the rest of the business cycle. They tend to kick a consistent dividend and relatively stable earnings, regardless of stock market situations.

According to Credit Suisse, several cyclical stocks that rely on market conditions tend to underperform. Autos and technology are among the laggards 12 months after the exchange curve.