Inverted yield curve and the stock market: what happened after past inversions

What happened after past inverted yield curves, in short?

Across 8 inversions of the 10-year minus 3-month spread between December 1968 and May 2019, a recession followed each time, and lead times ran from 6 to 17 months. The stock market reaction varied with the episode. Some falls came after the recession began, some arrived during it, and the 2022 decline happened while the curve was inverting. The pattern supports a window of caution and leaves the date open.

Three readings make the history easy to use. The lead time measures the wait. The depth measures how strongly short rates exceeded long rates. The market move around the recession start shows what shares did. The sections below apply those three readings to each period, starting with the oldest.

What did inverted yield curves show in 1968, 1973, 1978, and 1980?

The curve inverted in December 1968, and a recession began in January 1970, a lead of 13 months. In June 1973 it inverted again and the recession began in December 1973, only 6 months later, the shortest lead in the record. That inversion lasted 18 months and reached 159 basis points.

In November 1978 the curve inverted and a recession began in February 1980, after 15 months. A new inversion in October 1980 reached 351 basis points, the deepest in the table, and the recession of August 1981 followed after 10 months. Short rates ran far above long rates in both episodes, and the recession arrived each time.

How did the inversions of 1989, 2000, 2006, and 2019 play out?

The curve inverted in June 1989 by only 16 basis points, the shallowest case, and a recession still began in August 1990, 14 months later. In July 2000 it inverted by 70 basis points, and the recession began in April 2001, a lead of 9 months.

The August 2006 inversion lasted 10 months, reached 51 basis points, and preceded a recession that began in January 2008 in the Wikipedia table, a lead of 17 months, the longest in the record. The May 2019 inversion lasted 5 months and reached 52 basis points, and the recession began in March 2020, a lead of 10 months. A shallow inversion carried the same message as a deep one.

What did shares do around past inversions and recessions?

Shares moved around the recession start, with different timing each time. The Dow fell 18% in 3 months, from 2,911.63 on 3 July 1990 to 2,381.99 on 16 October 1990, and a recession had begun in August 1990. In the early 1980s, the S&P 500 fell 27.1% over 21 months from November 1980 as rates rose to tame double-digit inflation.

In the 2020 episode the S&P 500 fell 34% in about a month, from 3,386 on 19 February to 2,237 on 23 March 2020, and a recession began in March in the table. The inversion had started 10 months earlier. Each fall fits the recession window, while the size of each fall came from events that the curve could not show.

What happened to shares during the 2022 to 2024 inverted yield curve?

The 10-year minus 2-year spread inverted in July 2022 and turned positive in early September 2024. Wikipedia calls it the longest and deepest Treasury yield curve inversion in history. The S&P 500 peaked at 4,796 on 3 January 2022 and fell 27.55% to 3,498 by October 2022, a drop that overlapped the start of the inversion.

The 10-year minus 3-month table lists an October 2022 inversion with a depth of 182 basis points, and its recession row carries the label 2023 banking crisis with the lead time still open. The widespread recession calls made from 2022 to 2024 had not materialized when the source was written. The latest episode therefore remains an open case to monitor.

What do past inverted yield curves teach about stock market crash risk?

Three lessons stand out. The curve flagged a recession in all 8 cases, and its lead time of 6 to 17 months gives room to prepare. Depth gave little help with timing, since the shallowest inversion of 1989 still preceded a recession. Shares fell around the recession windows in the 1990, early 1980s, and 2020 examples, with a size set by other forces.

A crash needs a trigger such as forced selling or a credit freeze, and the curve measures the soil in which a trigger grows. Readers who combine the curve with the VIX, valuation ratios, and the EQOS Asia φ(S) score see both the soil and the trigger risk. Each signal adds a different view of the same market.

How can you use the history of inverted yield curves today?

Record the date of any new inversion, then mark the 6-month, 12-month, and 17-month points in your calendar. At each point, review cash reserves, debt maturities, and position sizes. This turns a headline into a schedule of reviews. A schedule written in calm periods holds up better than a decision made during a sell-off.

This page is general information, not investment advice. A 30-minute pre-diagnostic with EQOS Asia applies a structural score to your own exposure in Singapore, ASEAN, or Hong Kong, and the EQOS Asia pricing page lists the formats. The history gives you the calendar, and the score shows how much shock your system can absorb.

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About the author

Stéphane Jambu

President, EQOS Forecast Asia

Stéphane Jambu leads EQOS Forecast Asia and works as a consultant in e-commerce, search visibility, and AI. LinkedIn profile