You know it’s late August when corporate earnings season is over, the market is trading off of whatever little news is available, and volatility increases (many Wall Street people are on vacation, trading volume is low, so market moves tend to be exaggerated). That’s where we are now. It feels the same as last August, and the August before, and the August before.
I wrote recently about the yield curve inversion which sent the markets sharply lower only to recover over the following days as the yield curve un-inverted. Today the yield curve inverted again (slightly) and the market went from up 100 to down 100 to somewhere in the middle as I write. The news media acts like the yield curve inversion is a new discovery and so are blaring its minute-by-minute moves across many channels.
As I indicated in a previous post, the yield curve is but one indicator economists use in evaluating the strength of the economy and the likelihood of recession. Credit Suisse developed a recession dashboard that uses the yield curve along with six other indicators. Below is a chart showing the conditions of those seven indicators at the beginning of the prior six recessions, along with the current conditions. See a difference? Sure, the present conditions don’t look anything like the conditions at the beginning of each prior recessions.
Another firm developed a dashboard that uses 12 indicators. What’s interesting about that dashboard is that it is interactive and you can move each of the 12 sliders to see the impact on the overall recession predictor. Click here to open that dashboard and see what kinds of economic changes would be required to move the current prediction from caution to recession.
No dashboard is a crystal ball when it comes to predicting the next recession. But hopefully it’s obvious that many indicators beyond the inversion of the yield curve help economists and investors monitor economic growth and plan for the future.
Enjoy the remaining days of summer. And let me know if you’d like to discuss this, or any other matter, further.
