WSW Pro - It Turns Out That The Yield Curve Was Right After All (Recession Signal)

The most accurate indicator of a coming recession is changes in the yield curve, which is the difference between the 2 year and 10 year US Treasury bond interest yield. Normally, the latter is higher than the shorter duration yield, as people expect to get MORE money for lending their money out for a longer period of time, but when the ten year falls below the two year it means that people are worrying about a coming economic slowdown that will cause the Federal Reserve to lower interest rates.

That inversion took placed several years ago, and was widely reported and talked about, but no recession came. It turns out that the real signal is when the inversion ends, when the 2 year gets back above the ten year. Typically once that happens, a recession comes within six to eight months.

That signal hit last summer, to suggest that one would begin in the first quarter of this year.

However, in the past, the stock market would typically fall INTO a recession, topping out usually six months before it becomes evident, falling into a bear market, which did not happen.

In fact, the US stock market rallied last year and that rally picked up steam after the Trump election, in a burst of euphoria, that it wasn’t hard to get caught up believing in.

There was no sign of a recession in the first six weeks of this year, which caused me to wonder if this indicator was going to be wrong this time, but now there is as the Atlanta Federal Reserve real time calculation for first quarter GDP now is showing a sharp recessionary contraction.

So, what do we make of this?

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