ISMS 32: 5 Signs of Impending Recession

Warning Sign #1 - Inverted yield curve It’s not the first time the Fed has fought inflation Fed has been fighting inflation with its main tool Steep rate hikes have historically preceded recessions Fed’s tool to fight inflation is raising the federal funds rate This is the fastest and most aggressive rate-hike cycle by the Fed since the 1980s After the 0.25%-hike in Feb 2023, the current rate-hike cycle became the most aggressive since the 1980s The Fed has hiked rates by 5.25% in the current cycle This has resulted in short-term rates becoming higher than long-term (yield-cure inversion) Yield-curve inversion signals 4Q23 US recession All recessions in the US since 1968 were preceded by an inverted yield curve As it turns, recession typically follows Average time from inversion, until the recession started, was about 1 year (so 4Q23) Warning Sign #2 - Peak employment US is now at peak employment Peak employment precedes recession Unemployment now at 3.8% (same as April 2000) Puts upward pressure on wages, which is inflationary On the flip side, a strong labor market can keep the recession at bay Warning Sign #3 - Slowdown in bank lending Business lending has slowed; real estate and consumer loans flat Warns about a slowdown in business activity Warning Sign #4 - Leading indicators falling & bankruptcies rising Composite leading indicators falling but seen a slight rebound recently The indicator looks at factors aimed at providing early signals of turns in the business cycle While the indicator has given false signals before, recessions have typically followed large falls 72 US bankruptcy filings in 1H23, more than the previous two years Private and public companies with over US$100m in assets at the time of bankruptcy filing “Filings in the first seven months of 2023 surpassed total filings for the previous year” S&P Global Market Intelligence recorded 64 corporate bankruptcy filings in July, the largest monthly total since March and more filings than in any single month in 2021 or 2022 Warning Sign #5 - Weakening consumer Retail sales have been slowing, which typically precedes a recession Consumer sentiment has fallen since 2020 Credit card debt at US$1trn and growing while past due bills are rising Click here to get the PDF with all charts and graphs Andrew’s books How to Start Building Your Wealth Investing in the Stock Market My Worst Investment Ever 9 Valuation Mistakes and How to Avoid Them Transform Your Business with Dr.Deming’s 14 Points Andrew’s online programs Valuation Master Class The Become a Better Investor Community How to Start Building Your Wealth Investing in the Stock Market Finance Made Ridiculously Simple FVMR Investing: Quantamental Investing Across the World Become a Great Presenter and Increase Your Influence Transform Your Business with Dr. Deming’s 14 Points Achieve Your Goals Connect with Andrew Stotz: astotz.com LinkedIn Facebook Instagram Threads Twitter YouTube My Worst Investment Ever Podcast