What happened last week.
What we're watching for next week.
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You all know by now that I try to make this article as brief and to the point as possible so that busy people can get a sense of what's happening in the market quickly. This week I'm focusing on two things: the inverted yield curve, and the recession warning from my econometric model.
I'll leave bear market predictions to others, but if you want to see my bear market model, consider signing up for my monthly newsletter.
The chart below is the one that keeps me up at night. It's my recession forecasting model, and it's flashing red now. I won't bore you with the details, other than to say that this indicator combines the Treasury yield curve, employment trends, and inflation in to a single number.
As long as the number stays above 200, we're cool. Once it dips below 200, caution is advised. It has now been below 200 for 10 out of the last 11 months. What does this mean? It means that the next recession is now in sight but we don't know exactly when it will arrive. It might be next month, or it might be 6 months from now. Stay tuned.
Chart 1. S&P periodic returns.
Positive numbers all around. Up 13.1% year to date. What's not to like? For one, we've been in the wilderness for 190 days now. The wilderness is the number of days since the last high water mark. How many times you want to earn the same dollar on your investments? Think about it.
Chart 2. Distance from Key Markers
Wow. Up 20.6% from the most recent low water mark? Fantastic! But still below the previous high water mark, by 3.3% or nearly 100 points on the S&P 500.
Are you an optimist? Then you probably think it's only a matter of time before the bulls break through the old high of 2930. In my opinion, there's a 50-50 chance that could happen. But the better question is, what will the bulls do after that? How much ammo do they have to keep pushing the market higher? Think about it.
Final Thoughts
I've tried to inject a little levity into this report, but let's get real for a second. Nobody knows when the next recession will hit, or when the market will top out. The market may have already topped out. I've been pounding the table for months that investors should have a solid Plan B in place to protect against what's coming, because you can't stop what's coming.
If you want more info about how to set up a solid Plan B, send me a message at info@zeninvestor.org
For a full analysis of the probability of a bear market or a new recession, see my Monthly Intelligence Report.
As always, if you like what you see, or have suggestions for improving this recap, leave a comment below, or email me at info@zeninvestor.org
Maybe you need to revise the R-Score. Recessions/Bear markets do not happen until profits drop.
I don’t recall this indicator ever being wrong. Lot of things can cause profits to drop, but until it actually starts market move around but no real sustained bear market
Howard Randall
Profits are dropping as we speak.