Recession Indicators
1) The Yield Curve
2) The Labor Market
3) Transportation
Source: Zack's Investment Management
Levitt warns that they do need to watch a couple of factors that could weigh on stocks:-
1. Tightening financial conditions and
2. Persistent dollar strength
It’s small caps and transportation stocks, whose performance has deteriorated at a much faster clip than other parts of the market.
Relative to the S&P 500, each group is on the brink of hitting its lowest point since 2009.
THREE LEADING SECTORS TO WATCH
TRANSPORTS, INDUSTRIALS, SMALL-CAP STOCKS
In short, the bear market has been a long time coming, but finally, almost all the signs are showing that it’s about to start.
Back in 2007, when Wall Street was careening toward the financial crisis, the S&P 500 split from the consumer discretionary-to-consumer staples ratio, in a sign that appetite for risk was drying up even as the broader market pushed higher.
1. Inverted Yield Curve
2. GDP Decline
3. Slowing Corporate Profits
4. Manufacturing Contraction / PMI
5. Declining Cass Freight Index
6. Weak Copper Prices
7. Higher Gold Prices
8. Higher Global Economic Policy Uncertainty Index
9. Lower Business Spending
The small-cap sector, for example, has sprung a leak. The S&P SmallCap 600 index topped out one year ago and has slipped 15% since then, even though the S&P 500 has continued moving higher and making new all-time highs.
The failure of small-cap stocks to advance in unison with their large-cap counterparts is not always a bad sign, but it is never a good one. Technical analysts describe this phenomenon as a "bearish divergence" that often portends overall stock market weakness.
Another sort of bearish divergence is also signaling trouble ahead: The "new highs" list has been contracting for nearly two years. The "new highs" list tracks the weekly tally of stocks on U.S. exchanges that are hitting new 52-week highs.
Generally speaking, a "healthy" stock market produces a rising number of new highs as it marches higher, whereas an unhealthy stock market produces a contracting number of new highs.
Technical analysts refer to the latter phenomenon as "narrow participation" ... and it is never a positive sign.
An inverted yield curve
A poorly performing transportation sector
A reviving precious metals sector
1. FAANG has died
2. Recession risk climbs
3. Dow Transports continue to suck wind
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