Stocks are surging, but are we right on schedule for a big drop and recession?
The yield curve inverted in March 2019. Remember? Considering that this financial irregularity has preceded every economic recession in the last 60 years — this was pretty big news. Many news articles written in the late spring and summer of 2019 detailed what would happen next. According to Credit Suisse, in the 18 months following the inversion the market rallies more than 15% on average. Then sequential losses can start to add up and recession hits an average of 22 months after the inversion. I wondered at the time if these predictions would come to fruition. Lately with the stock market hitting new highs it’s been on my mind again.
Using the historical averages, the stock market should continue to rally until September — ending up 15%+ from last March. Then the market will start to drop and a recession should hit in November (perhaps just after the election?) Incidentally, it’s been 10 months since the yield curve inverted. The S&P is up almost 8% with 8 months to go before things are predicted to go south.
A lot of the talk about the yield curve and impending recession seem to have greatly diminished. Why? Was all that concern just news fodder for the day? Or are our memories that short? Are we so myopically focused on the current headlines (i.e. impeachment) to have forgotten the clock has been ticking since last spring? Despite the recent surge in equities, we appear to be right on schedule for a correction and a recession later this year. Of course, I hope history and the hyped news are wrong. But I’ll be watching.
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Note: Note: I am a partner and investor with OpenPath Investments, a social impact real estate investment firm. OpenPath investment opportunities are for accredited investors. The numbers used in the above example are for illustrative purposes. Actual results from OpenPath real estate investments can vary. I am not a CPA or professional financial advisor. All opinions are my own.