Mar 29, 2019 3 min read

There is growing concern about the stock market, and much of it starts with the way bonds have been performing.

When you buy a bond, you are lending money to the government or a company. It promises to pay you back over a certain period of time, with interest. Because you are accepting the possibility of default, the borrower might not be able to pay you back and you would demand a higher interest rate from more risky entities.

Also, you would normally expect to get a higher interest rate on bonds that had a longer maturity date. This is because inflation could erode your investment. And if you need to access your money before maturity, you may have to liquidate at a discount to adjust to rising interest rates.

Investors are very concerned because last week, for the first time since 2007, the rate for 10-year government bonds fell below the rate for three-month treasuries. This is known as an inverted yield curve. Often, this is viewed as a possible warning sign for a recession.

According to Reuters: “The U.S. Treasury yield curve has inverted before each recession in the last 50 years and has only offered a false signal just once in that time.”

The Federal Reserve had been expected to raise interest rates at least one more time this year and probably one time next year. It indicated that this probably would not happen.

This more dovish attitude leads people to believe the economy is slowing, and that would not be good for stocks. The government has lowered expectations a little for the rest of this year and next. The stock market is fully priced and is certainly not cheap.

Brexit is also facing some issues, as Britain tries to figure out how to unwind from the European Union. That country is very much divided, and the way it does business with the rest of Europe is in flux.

When the vote first happened two years ago, our stock market crashed 900 points in three days. Fortunately, it rebounded almost as quickly. The world knew at that time the actual unwinding would not happen for a while. Now, the time could be close.

A possible major plus would be if the Trump administration could reach a new trade deal with China, which has repeatedly ignored our patents and other intellectual properties. China also has limited our access to their billions of consumers. If these issues could be resolved, it could be very beneficial to our country.

We recently reached the 10th anniversary of the market crash, which hit its low in March 2009. Stock prices have soared since. Unfortunately, this bull market will not last forever.

While there is never a great time for a market correction, there certainly is a worst time. That is right before you retire or early in your retirement. While no one knows when a correction might come, make sure your investments match your risk tolerance and timeline.

Gary Boatman is a Monessen-based certified financial planner.

He is author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.