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When this is happening in the bond market, you don't want to own stocks

A costumed reveller wearing a mask depicting Munch's famous painting 'The Scream'
Gabriel Bouys | AFP | Getty Images

The so-called yield curve is flattening and history shows that's not good for stocks.

The difference between the yields on the 10-year and 2-year Treasuries reached its lowest point since the election: 1.14 percentage points. It was as high as 1.35 in late December.

When the yield curve is flattening like it is now, investors take that to mean the economic outlook is dampening. When it grows steeper, like it did after the election, the economic outlook is seen as brightening. But we found it also influences the stock market.

Using hedge fund analytics tool Kensho, we looked at what happened to the stock market when the difference between the 10-year and 2-year yield declined (flattened) by 25 basis points in 1 month. This occurred 19 times in the last decade.

Here is the S&P 500's average performance during those months, along with the two top-performing and worst-performing sectors.

So if history is any guide, stock investors better hope this bond market trend reverses.