The constant debates about whether we’re in a recession have died down in recent months. But don’t assume the risk is over…
We haven’t seen unemployment rise. However, just about everything else that happens before a recession is here… including rampant inflation, slowing growth, a stock market crash, and an inverted yield curve.
Now, one more sign tells us a recession is on the way. It has a perfect track record. And it just flashed a warning sign.
Let me explain…
Measuring economic health is no easy task. The economy is big, diverse, and complicated.
Oftentimes, one indicator will say things are fine… while another will say danger and catastrophe are on the way. And at times like these, making sense of it all keeps economists up at night.
The best solution is to look at everything and compile it into something simple enough to act on. That’s exactly what The Conference Board does with its Leading Economic Index (“LEI”).
This index combines 10 economic indicators. These include manufacturing data, unemployment, building permits, credit conditions, stock prices, and more.
The indicators each tell different stories. But combining them gives us a good look at overall economic health.
In particular, you want to watch the LEI’s year-over-year change. Once it falls to negative 1% versus the prior year, a recession is certain… And we recently hit this key level. Take a look…
You can see that this indicator is a strong predictor of a coming (or current) recession. But we have seen a few negative readings that didn’t happen ahead of recessions.
A drop below negative 1% changes things, though. Again, that kind of fall has a perfect track record as a recession indicator. Take a look…
We’ve seen eight other signals since 1969. In three cases, we were already in a recession. And in the other five, it took an average of six months before the recession began – with the longest wait time just less than a year.
Today’s signal is another clear sign that the economy is still under pressure. An official recession is almost certain.
Now, we know that stocks only bottom when times are bad. The good news is that stocks have already fallen a lot… And losses set the stage for big gains.
So, a looming recession doesn’t mean the end for your investments. Instead, it means a period of strong gains could be on the way. But we need to be patient and wait for the uptrend before buying.
Good investing,
Brett Eversole
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Source: Daily Wealth