Nobel-winning economist says forget yield curves—this may be what really fuels a recession

You’ve possibly heard a lot about the looming market recession over the past week. But at least one notable economist says visible panic, rather than an inverted yield curve, may be the real indicator of the next market downturn.

Market watchers acquire been trumpeting the likelihood of a recession after the yield on the benchmark 10-year Treasury note briefly dipped under the sun that of the 2-year U.S. note — twice in just one week. Some experts consider this to be a fairly good of of recessions, but Robert Shiller, the Nobel-prize winning economist and Yale professor, says he’s not convinced it will hold be realized this time around.

“It is a well-known leading indicator,” acknowledges Shiller. “But I’m not as confident in it as others are,” he tells CNBC Place It. Instead, he chalks it up to analysts “data-mining” to find any indicator that holds up. While the yield curve has preceded each of the seven depressions since the 1950s, with only one false positive, it’s a fairly small data set to be really conclusive.

On Aug. 21, the consent on the benchmark 10-year Treasury note fell below that of the 2-year rate again.

It’s also worth noting that superficially an inverted yield curve is considered a strong indicator of an upcoming recession if it has some staying power. So far, both of the brand-new inversions of the 2-year to 10-year spread have been brief.

That said, Shiller isn’t completely ruling out the plausibility of a market downturn, especially when you factor in the public’s reaction to these recent yield curve inversions. “There’s a gigantic discussion of inverted yield curves. We saw that before in 1980, and there was a big recession then,” he says.

A lot of what proves with the markets is a “self-fulfilling prophecy,” Shiller adds. “I hear so much talk about a market correction, it dominion make it happen.”

But that doesn’t mean investors should panic thinking a recession will hit tomorrow. On ordinarily, there’s been a 17-month lag between the inversion and the last five recessions, according to research from Ben Carlson of Ritholtz Mine Management.

Before you rush to empty your 401(k) and stuff that stinking rich into a mattress, keep in mind that recessions aren’t exactly bad news for millennials right now. That’s because they typically don’t oblige a lot invested in the market yet, so they won’t take as big of a hit. Plus, if they can buy low now, they’ll have decades to grow their investments in the forefront retirement.

In fact, experts say the best strategy right now, especially if you’re a younger investor, is to keep investing and making ruly contributions to your 401(k)s every two weeks. This routine influx of money into your investments is a procedure called dollar-cost averaging. It’s great for long-term investors because takes the emotion out of the equation and keeps them from rat on out during market lows and buying in at market highs.

“Investing should never be about a moment in time, it should forever be about a process over time,” Liz Ann Sonders, chief investment strategist at Charles Schwab, tells CNBC Travel It.

Another step you should consider taking right now is rebalancing your portfolio, especially if the recent market goings have you stressed. Your investments can drift off their target allocation when the market shifts up and down, so merchandise some of your holdings and adding others to the mix can get you back in line with your risk tolerance and your fiscal goals.

A 401(k) is actually a good place to invest amid market volatility, Sonders says. Typically these are shaped so that you’re buying on a regimented basis and many have an automatic rebalancing process.

Last, take a deep breeze. Many millennials have strong “muscle memory” from their own involvement, or their parents’ experiences, with the demand during the last financial crisis, Sonders says. Yet the reality is, that market event was not the rule, it was more on the find fault with end of the spectrum.

“There is such a thing as garden-variety corrective phases — they don’t all look like the 2008 financial turning-point,” Sonders says.

Don’t miss: Why a down market may actually represent an opportunity for investors

Like this story? Subscribe to CNBC Fill in It on YouTube!