The Single Best Predictor of a Recession is Signaling “WARNING!”

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By now, you’re no doubt getting pretty worried about the markets.

After all, why wouldn’t you?

Russia has invaded Ukraine which has massive implications for natural resources. Oil is over $120 a barrel. The stock market is already down over 10% from its recent highs.

It’s enough to stress anyone out!

Well, unfortunately we now need to add the following: the U.S. will likely enter a recession late this year or early in the next.

According to the Fed’s research, the most accurate predictor of a recession is the 10-year/ 3 month U.S Treasury yield curve, or the difference between the yield on the 10-Year U.S. Treasury and the yield on the 3-month U.S. Treasury.

Whenever this yield curve breaks below 0%, the U.S. has entered a recession. I’ve identified this level on the chart below.

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The bad news today is that this yield curve is currently rolling over in a big way.

As I write this, it’s about to take out its upward trendline (red line in the chart below). This would mean that the yield curve is no longer trending in a positive manner but is heading downwards to the dreaded ZERO that predicts a recession.

Put another way, a break of this level would almost assuredly trigger a yield curve inversion… which would mean a recession is just around the corner.

Line chart

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Please note, the last two recessions triggered stock market crashes. The yield curve inverted a mere six to nine months before the crash hit. This means we can expect a full blown crash some time later this year or early in the next

Chart, histogram

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You’ve been warned.

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