Bond yields have been collapsing clear across the world. And if history is any guide, the rapid decline is a function of undeniable economic weakness.

Consider the correlation between bond yields and time-tested measures like the Institute for Supply Management’s PMI. The 10-year U.S. Treasury yield tends to follow in the indicator’s footsteps.

As the chart shows, waning economic growth and falling bond yields occurred in 2012 and 2016. During those periods, corporate earnings struggled immensely.

What about today? Not surprisingly, earnings growth (and margins) have decelerated significantly.

Expectations (Q2) for year-over-year earnings growth? -2%. And yet the Federal Reserve’s intention to cut rates has propelled the U.S. stock market to all-time highs.

The anticipation of “QE3” bolstered equities in 2012. Meanwhile, the combination of global quantitative easing stimulus and corporate tax reform benefited stocks in 2016.

Can rate cut stimulus in 2019 push stocks considerably higher from here? Stock valuations are far more prohibitive in 2019 than they were on the previous go-arounds.

There comes a point in every credit cycle when stocks no longer respond to Federal Reserve manipulation. The Fed began cutting aggressively prior to all three of the previous recessions. It did not do the trick.

Will rate cuts provide a jolt for the economy at this juncture? We’ve already seen mortgage rates in this vicinity. Only now, home prices are much higher. Absent substantial loosening of underwriting standards, real estate prices would be fortunate to sit atop a lofty perch.

Of course, some believe that lower rates will encourage corporations to maintain or ratchet up borrowing. Given record leverage, are corporate executives going to be excited about taking on more debt to finance profitability perceptions through buybacks?

Many corporations may tether executive compensation to short-term stock performance. That said, decision-makers are aware that the Fed’s dramatic flip from tightening to neutral (December 2018), and now neutral to easing (June 2019), collectively signal a shift in the economic tide.

In other words, why borrow forcefully when the economic expansion is in the home stretch? When the more sensible move would be to prepare for the storm by battening down the hatches?

Keep in mind, the Fed is the only recession fighter in the game at this moment. One can unequivocally rule out any stimulus from the fiscal front due to the make-up of Congress and the timing of the 2020 election(s).

Indeed, there are plenty of reasons to be cautious on overexposing one’s portfolio to equities. Goldman Sachs has a Bull/Bear Indicator that tracks meaningful data points, including unemployment, core inflation, and the yield curve. Not only is the gauge itself flashing “red,” but its trend appears to be rolling over as well.

There are those who criticize my frequent concentration on equity risks in my commentary. Some prefer to “buy-n-hold” stocks. Others see the stock market direction in terms of black and white, where there is only “right” and “wrong.”

I view the financial markets along a spectrum of risk where there are five hundred shades of gray. For example, the economy could be closing in on a recession, the stock market could be in a downtrend, and assets could be incredibly overpriced. This would be a poor time to take on more risk. Yet the reward for participation might be amazing, and gains may occur in spite of the monster-sized risks that are present.

On the other side, the economy could be coming out of a recession, the stock market’s trendline could be sloping upward and assets could represent bona fide bargains. This would be an excellent time to take more equity risk. Yet the reward for participation might be minimal, or modest losses might even result.

The important point here is to understand that the risk-reward relationship matters, regardless of the outcome. When the likelihood of reward is compromised by an overabundance of undesirable risks, it is sensible to limit one’s pursuit of reward. And when the likelihood of reward is augmented by a surplus of favorable data points, it is wise to emphatically embrace risk-taking.

My near-retiree and retiree client base require a plan for surviving a violent financial storm. Like the bursting of the tech bubble in 2000. Like the popping of the real estate balloon and the breakdown of the financial system in 2008. That is why, when our warning signals flash, we tactically reduce risk from our top target allocation.

There are times when the actions may cost us near-term price gains. Other times, however, the moves have been decidedly beneficial.

For instance, over the last nine months, I have discussed the importance of employing interest-rate sensitive assets. Assets such as iShares US Core REIT (USRT), VanEck Preferred ex Financials (PFXF), SPDR Short-Term Treasury ETF (SPTS) and iShares Minimum Volatility Global (ACWV) have offset some of the broader market volatility and uncertainty.

There are many paths for creating wealth. The question I consistently raise is, “How will we keep it?”