Investors are worried that the U.S. will experience negative interest rates, disarming the Federal Reserve if a recession were to occur.
Investors and economists often look at the yield curve for the hints of a recession. The inversion of the yield curve has consistently been a precursor to every recession since 1950. However, investors are now more worried about an interest rate dipping below zero.
"Most of them believe that the US economy can continue to grow for the foreseeable future. So they aren't freaking out about the recent inversion of the yield curve. However, they are somewhat anxious about the prospect of negative interest rates in the US, though they think it is a remote possibility," said Ed Yardeni, chief investment strategist at Yardeni Research.
Investors are worried that the Fed will not be able to implement any type of easing monetary policy if a recession were to hit because interest rates would already be so low. The Fed will no longer be able to continue cutting rates if it is already too low.
Additionally, as US Treasury bonds experience lower yields, investors then begin to see higher risk stocks with higher yields as more appealing.