Yield Curve as a Stock Market Indicator

Conventional wisdom holds that a steep yield curve (U.S. Treasuries term spread) is good for stocks, while a flat/inverted curve is bad. Is this wisdom correct? Using average monthly yields  for 90-day Treasuries (T-bill),  1-year Treasuries,  3-year Treasuries, 5-year Treasuries, 10-year Treasuries (T-note) and 20-year Treasuries and contemporaneous monthly levels of the S&P 500 Index for April 1953 through August 2010 (689 months, with 81 of these months not available for 20-year Treasuries), we find that: (more…)