The S&P 500 never bottoms before the unemployment rate rises
The market is losing momentum, and the yield curve signals a recession ahead
A thread π§΅
The market is losing momentum, and the yield curve signals a recession ahead
A thread π§΅
2/ The bond market points toward major economic weakness ahead
The yield curve is the most deeply inverted its been since the 1980s
It has a perfect track record in anticipating 7 recessions since 1960
The yield curve is the most deeply inverted its been since the 1980s
It has a perfect track record in anticipating 7 recessions since 1960
3/ Unemployment rate systematically rises the year following a yield curve inversion
Because an inversion implies that short-term interest rates are too high for the economy
Below is the unemployment rate following inversions
Because an inversion implies that short-term interest rates are too high for the economy
Below is the unemployment rate following inversions
4/ Deeper inversions are correlated with weaker economic activity
The deeper the inversion β the lower the PMIs go
The deeper the inversion β the lower the PMIs go
5/ When PMIs are low, markets tend to move lower
Prime examples include:
- 1970s period
- 2001
- 2008
- 2020
Prime examples include:
- 1970s period
- 2001
- 2008
- 2020
6/ PMIs systematically move lower in the 12-months following the yield curve inversion
Contracting PMIs foreshadow a continuation of declining economic activity
A chart showing how PMIs change after inversions:
Contracting PMIs foreshadow a continuation of declining economic activity
A chart showing how PMIs change after inversions:
7/ Leading economic indicators are dropping like a stone
Theyβre pointing toward an incoming GDP contraction
Theyβre pointing toward an incoming GDP contraction
8/ The stock market has never seen a bear market bottom before the unemployment rate begins to rise
This was the case in:
- 1970
- 1974
- 1982
- 1990
- 2003
- 2009
1987 and 2020 are not included, given these were more flash crash than a true bear market
This was the case in:
- 1970
- 1974
- 1982
- 1990
- 2003
- 2009
1987 and 2020 are not included, given these were more flash crash than a true bear market
9/ The only time the market bottomed without a rise in unemployment was in 1966
The economy was able to avoid a recession as the Fed successfuly pulled off a soft landing
But inflation was only around 3% & yield curve was a lot less inverted back then
Today we are still at 6%
The economy was able to avoid a recession as the Fed successfuly pulled off a soft landing
But inflation was only around 3% & yield curve was a lot less inverted back then
Today we are still at 6%
10/ In the short-term, the S&P 500 rally has been losing momentum
Itβs coming back down to test the 50 and 200-day moving averages
Our short-term base case is that S&P 500 bounces off this key support zone to possibly retest 4100 before eventually breaking below 3900
Itβs coming back down to test the 50 and 200-day moving averages
Our short-term base case is that S&P 500 bounces off this key support zone to possibly retest 4100 before eventually breaking below 3900
11/ Thanks for reading!
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