Question

In general, there are five major investment assets such stocks, bonds, commodities (e.g. oil, gold, silver, corn, sugar, coffee, etc.), real estate (e.g. houses, buildings, etc.), and cash or cash equivalent. On the U.S. Treasury yield curve just inverted for the first time in more than a decade. The spread between 3- and 5-year yields fell to negative 1.4 basis points on that day, dropping below zero for the first time since. Suppose that you have been retained by Fidelity as an investment analyst and were asked to suggest investment assets to your major clients (Beyonce, Shakira, Daniel Radcliffe, George Lopez, Johnny Depp, etc.) by your head, Abraham Lincoln. Based on your best knowledge, which assets would be good for your clients investment? Why might you think so? Explain thoroughly.

Answer 1

The treasury yield curve is inverted after a decade and The spread between 3- and 5-year yields fell to negative 1.4 basis This is a clear signal indicates that short terms rates are higher than the long term rates and it can be hint towards recession.

Federal Reserve push the short term rates up when they want to to slow economic growth in order to prevent inflation going out of control. This will make economy weak and this can indicate that recession is coming

So in that case, bonds are not good investment option.

Also, economy is going in week state, because of higher short term rate. Companies will have difficulties in taking short term loans because of higher rates. Even foreign investors will not come and invest since in long run, there is nothing to gain for them. So all these factors will impact stock market and stocks of companies will also go down

Since long term interest rates are lower, people will start investing in commodities. So commodities is good option for investment

Real estate, since market is slow, will also face challenges.

So in my openion, cash and commodities are the two investment instruments which we should use in the given scenario