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by winston » Thu Dec 28, 2023 8:42 am
1. GDP declines
2. Yield curve inversion
3. Spikes in the Volatility Index (VIX)
4. Rising unemployment levels
5. Stock market crashes
by behappyalways » Sat Jan 20, 2024 2:03 pm
by winston » Tue Jan 23, 2024 4:53 pm
An inversion between the 10-year Treasury and 3-month Treasury has been a particularly reliable leading indicator of recessions.
"The yield curve has predicted essentially every U.S. recession since 1950 with only one 'false' signal, which preceded the credit crunch and slowdown in production in 1967."
That tool currently puts the odds of a recession at nearly 63%.
While 63% might not sound too bad, it is the most severe reading since August 1981. And since 1960, the U.S. economy has always suffered a recession within 12 months of a reading exceeding 50%.
by winston » Thu Jan 25, 2024 10:37 am
Red Flag No. 1: Popular media outlets push the new trend. Media-sponsored events and "investment conferences" typically encourage investors to invest large sums immediately, pushing a combination of "FOMO" (fear of missing out) and promises of high, fast returns.
Red Flag No. 2: The returns don't align with historically average market returns. Fads typically lack fundamentals, strong business models, revenue streams, and developed markets. Instead, they rely more on hype than substance.
Red Flag No. 3: The "peanut gallery" is buzzing. Watch to see if people with a shallow knowledge of investing get excited about an opportunity. If your cousin – who can't balance a checkbook – starts trading Dogecoin on his cellphone, that's a bad sign.
Red Flag No. 4: The business operators make bad decisions. In addition to the investment, you must look at the people who are operating the companies... and see if they have a weak track record or a history of failed ventures in various businesses. A person who was working in cannabis in 2019, angel investing in 2020, jumped to blockchain in 2021, and then ran a non-fungible-token ("NFT") company in 2022 probably isn't your ideal CEO.
Red Flag No. 5: The regulators are cautious. If you can't spot fads independently, regulatory agencies like the U.S. Securities and Exchange Commission ("SEC") or Commodity Futures Trading Commission occasionally issue alerts about potential investment scams or fads.
by winston » Mon Jan 29, 2024 6:10 pm
1. The Conference Board Leading Economic Index (LEI) strongly suggests a recession is likely in 2024.
For the month of December, the LEI declined by 0.1%, with the six-month growth rate coming in at a decline of 2.9%.
While this represents a more modest drop from previous months and prior rolling six-month periods, it still marked the 21st consecutive month of declines for the LEI.
2. The spread (i.e., difference in yield) between the 10-year Treasury bond and three-month Treasury bill. With the yield-curve inversion hitting its steepest point in roughly four decades, the New York Fed's tool is forecasting a nearly 63% probability of a recession taking place by or before December 2024.
3. M2 money supply is contracting
M2 accounts for everything in M1 (cash and coins in circulation, along with demand deposits in a checking account), and adds in money market accounts, savings accounts, and certificates of deposit (CDs) below $100,000.
by winston » Tue Jan 30, 2024 9:00 pm
When junk rallies, it’s a “risk-on” environment – and stocks tend to do well.
But when junk bonds fall in price, investors reduce their risks. And in this sort of “risk-off” environment, stocks tend to fall.
HYG has been struggling for the past few weeks. It is trading below the all-time high it posted in December.
Unless HYG can turn around and immediately rally back above its 9-day EMA, it’s headed lower. If that happens, the stock market will likely be headed lower as well.
by behappyalways » Tue Feb 06, 2024 4:53 pm
by winston » Thu Feb 15, 2024 10:09 pm
When bonds top out and stocks keep rallying, the inflationary picture may not be as rosy as stock investors think it is.
I won’t speculate on what the Fed will or won’t do this year. But either scenario introduces risk to the market. That means traders need to be flexible today.
In short, we can’t ignore the divergence we’re seeing between bonds and stocks. It’s a potential warning sign. And it’s another reason why now is a good time to trade tactically.
by winston » Mon Feb 19, 2024 11:44 am
Shiller price-to-earnings (P/E) ratio, cyclically adjusted price-to-earnings ratio, or CAPE ratio.
Over this 150-plus-year period, the average reading for the S&P 500's Shiller P/E ratio is 17.09. But as you'll note in the chart below, it's spent almost the entirety of the past 30 years above this mark.
There have only been six instances where it's demonstrably surpassed 30 and sustained this level -- and it's portended a big move lower in the broader market in all prior events:
As of the closing bell on Feb. 15, 2024, the Shiller P/E sat at 33.85.
by winston » Thu Feb 22, 2024 11:40 am
When Treasury and Bund yields are highly correlated, that's a sign that the US economy could be poised to enter a recession, as European central bankers are looking to cut interest rates quickly if the US tips into a downturn.
Rates, meanwhile, could stay higher-for-longer than investors are anticipating as inflation pressures linger in the economy, which raises the risk that the Fed overtightens the economy into a downturn.
The US now has an 85% chance of entering a recession, the highest probability seen since the Great Financial Crisis, according to one economic model.
New York Fed economists, meanwhile, are pricing in a 61% chance the economy could tip into recession by January of next year.
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