With the emergence of Google as the dominant internet search engine, its search-term usage can provide a real-time view of current public interests in numerous issues such as economics, politics, health and so forth. Thus, if large groups of people are entering certain economically-linked search terms, this could provide a clue about the general public’s financial stress levels and the onset of a recession. Whilst there are several search-terms that effectively provided warning of the 2008 U.S recession, we need […]
About RecessionALERT
Dwaine has a Bachelor of Science (BSc Hons) university degree majoring in computer science, math & statistics and is a full-time trader and investor. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT into a company used by hundreds of hedge funds, brokerage firms and financial advisers around the world.Global Economy affects U.S stock market returns
The global economy is currently in the depths of a synchronized global business-cycle contraction, first highlighted by us in June 2018. In March 2019 we followed up with Global Economic Activity slowing at the fastest pace since 2011. The chart below highlights the Global Leading Economic Indicator together with the percentage of countries tracked that have a rising Leading Economic Indicator: The percentage of countries with a rising LEI is an excellent 2nd-derivative, leading the global LEI consistently through the […]
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Adjusting Fed Funds Rate for QE to predict rate cycle direction changes
The Federal Reserve Funds Rate (Fed Funds Rate) is the interest rate that banks charge other banks for lending them money from their reserve balances on an overnight basis. By law, banks must maintain a reserve equal to a certain percentage of their deposits in an account at a Federal Reserve bank. Any money in their reserve that exceeds the required level is available for lending to other banks that might have a shortfall. The chart below tracks the Fed Funds […]
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RAVI Warning issued
This subscriber-only client alert has now been unlocked for public viewing. NOTE : The RecessionALERT Valuation Index (RAVI) now warrants its own, more detailed, dedicated PDF report which you can now find in the REPORTS>RAVI menu tab: Well, it has finally happened, we have a recession and stock market bear warning from just about every RAVI indicator as at 1Q2019. All of the 8Q average of the 2YR forecast, the 4Q average of the 1YR forecast and the average annualized […]
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Is the U.S Yield Curve Inversion locked in?
In our February 2019 commentary we forecast that the 10’s and 1’s yield-curve would invert in May. The data below is taken from that market commentary, with a warning that the indicated dates of recession have a very wide standard deviation over the historical record: The 10’s and 1’s term spread has been inverted since 23rd May, for six sessions now. The question that naturally comes to mind is “how long must the daily yield curve be inverted for us […]
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The improved, de-trended Composite Market Health Index (CMHI)
One of our oldest and most consulted indicators by our institutional clients is the Composite Market Health Index (CMHI – see research paper ). By de-trending this index around its long-term regression mean we can obtain far earlier bear-market warnings and signalling for the U.S stock markets. You can see this index updated every day from the CHARTS>MACRO>CMHI interactive chart. Clicking on the “hamburger icon” on the top right of the chart lets you download all the data into Excel […]
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Impact of monetary policy & yield curve on future volatility
This research note investigates the relationship between the yield curve (US 10-year less US 1-year constant-maturity treasury spread) and the Federal Funds Rate (monetary policy) on the future readings of the CBOE VIX index. The 10’s vs. 1’s yield-curve and U.S recessions in the post-war era are displayed below, where it is clear that the nine recessions since 1956 were predicted by yield-curve inversion, with one false positive in 1966. The smallest lead-times to recession average 8 months, the median […]
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Unemployment is worse than it looks
The U.S civilian unemployment rate reached new lows of 3.6% in April – numbers last seen 51 years ago in 1968: There are a number of ways to use the national unemployment rate to signal recession, but almost all of them are co-incident to slightly lagging in the warning they provide. We have the most commonly used method which is annual growth of the unemployment rate, which has provided about six false positives since 1950 and can lag on occasion […]
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What are odds of a SP500 reversal?
The SP-500 has corrected 4.35% from its recent high achieved a couple of days after our repeated warnings of high correction risks. The question that naturally comes to mind now, as we embark on this corrective phase, is what the odds of the worst being over are. We have been working on a statistical model for launch in July but due to the topical nature of this question, we thought we would reveal what the current version of the model […]
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A new U.S Residential Housing Index
According to many market watchers, there is no better barometer on the health of the U.S. economy than residential housing. It’s an industry that encompasses many vital sectors of the economy such as banking, manufacturing, commodities, construction, durable goods, international trade, transportation and, of course, consumer spending. So it’s not surprising the Federal Reserve closely monitors housing trends in the course of setting monetary policy.Sound economic growth in the U.S. is not possible without a robust residential real-estate market and […]
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Global Growth Roundup – 4Q2018
NOTE : The following charts are extracts from our monthly Global Economy Report available with a standard subscription. Global Economic Activity slowing at the fastest pace since 2011 The cumulative GDP growth for the 4 quarters of 2018 for all 41 major countries covered by the OECD display a stark contrast between the best and worst performers: The G20 and U.S are comfortably above the OECD average, whilst the EU is uncomfortably below average, no doubt due to low growth […]
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U.S Stock Market Valuations continue to warn
We have updated the RecessionALERT Valuation Index (RAVI) forecast models for the SP500 using 4Q2018 data. Stock market valuations continue to pose a “clear and present danger” to positive economic and SP500 returns outcomes, and have worsened since our last warning . One and two year SP500 forecasts continue to offer relatively accurate short-run estimates despite their low overall long-term correlations and both are foretelling mediocre returns (click image for larger view): To this end, as is tradition, we offer […]
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Yield curve inversion forecast update – Feb ’19
Based on the methodology discussed here we hereby update our U.S Yield-curve inversion forecast and subsequent recession and stock market peak forecasts. All the forecast dates have moved foward by 1 month as the yield curve continues to print below its regression mean: As a matter of interest, 60% of all 10 possible term-spreads have now inverted, as shown below with our average yield curve composite of all 10 term-spreads: We have inversions on all the typical early inverters: 5’s […]
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World in depths of business cycle slowdown
On 8th June 2018 we penned a warning that the worlds’ major 41 economies, as tracked by the OECD, were headed for a synchronized business cycle slowdown. You can read the article here : World headed for cyclical slowdown. Indeed, as you can see below, for quite a few months shortly afterward, we bottomed out with less than 11% of the 41 countries tracked having rising OECD LEIs: The percentage of 41 counties with a rising LEI seems to have […]
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WLEI updated and some news
The U.S Weekly Leading Economic Index (WLEI) as at 01 Feb 2019 has been updated to our front page together with historical vintages file. Here is a snapshot of the last few vintages: We seem to be revising down each week but the overall shape of the WLEI still hints at an index attempting to put in a bottom and recover. The percentage of underlying weekly components and the percentage of time the WLEI has historically been above current levels […]
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Yield curve inversion forecast update – Dec ’18
Based on the methodology discussed here we hereby update our U.S Yield-curve inversion forecast and subsequent recession and stock market peak forecasts. All the forecast dates have moved foward by 1 month:
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Yield Curve Inversion Forecast Update Nov 2018
Based on the methodology discussed here we hereby update our U.S Yield-curve inversion forecast and subsequent recession and stock market peak forecasts. All the forecast dates have moved further back by 5 months:
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Stocks valuations pose “clear & present” danger.
Those clients who have been with us since 2010 will know our refrain from issuing unnecessary and/or sensationalist warnings about the economy and markets. In fact, in 2012, the general consensus was that the US economy was about to fall back into recession, a view we opposed to quite some ridicule from certain quarters. Whilst we see no immediate danger signals from the econometric models (apart from the narrowing yield curves in the bond market) we do see danger posed […]
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2nd derivative of WLEI posts warning
The RecessionALERT Weekly Leading Economic Index (WLEI) is essentially a first derivative indicator (rate of change). We can create the second derivative by measuring the percentage of time the WLEI has historically spent above the current reading. The history shows us that this is a good leading indicator for another WLEI metric, namely the percentage of WLEI components in recession territory (we call this the “WLEI Diffusion”): The 2nd derivative is diverging from the WLEI Diffusion, and as we mentioned, […]
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SP500 was ahead of itself but tailwinds could be back
During the 6 months running from March to September 2018, the SP500 was running counter to the seasonal average returns profile of the 4-year U.S Presidential Cycle: It appears the seasonality averages eventually got their way and the SP500 fell hard in October 2018, in what was supposed to be a strong month. In all likelyhood the tailwinds of one of the strongest periods in the Presidential Cycle will come to bear and we should expect good returns for the […]
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