No-Recession Predictions Begin to Look More Plausible, but Risks Remain Too High

investing.com:

I previously discussed a slate of recessionary indicators with high correlations to recessionary onsets. However, as we head into 2024, many Wall Street economists predict a “soft landing” or “no recession” outcome for the economy.

Are these recessionary indicators with near-flawless track records wrong this time? Will it be a soft landing in the economy or something worse?

We must start our recessionary indicator review with the “Godfather” of them all – “Yield Curve Inversions.”

Bonds are essential for their predictive qualities, so analysts pay enormous attention to U.S. government bonds, specifically the difference in their interest rates. As such, there is a high correlation between the yield curve’s slope and where the economy, stock, and bond markets generally head longer term.

Such is because everything from volatile oil prices, trade tensions, political uncertainty, the dollar’s strength, credit risk, earnings strength, etc., reflects in the bond market and, ultimately, the yield curve.

Regarding yield curve inversions, the media always assumes this time is different because a recession didn’t occur immediately upon the inversion. There are two problems with this way of thinking.

As discussed in March last year, if you wait for the official announcement by the NBER to confirm a recession, it will be too late. To wit:

“Each of those dots is the peak of the market PRIOR to the onset of a recession. In 9 of 10 instances,the S&P 500 peaked and turned lower prior to the recognition of a recession.“

Here is the analysis in table form. It is worth noting that the market’s lead to the economic recession has shrunk markedly since 1980. As such, given the rally in the market this year, it is not surprising a recession