TZA - Recession Imminent?
2023-05-01 13:10:00 ET
Summary
- It appears the recession is right around the corner.
- As the recession begins, the yield curves will begin to steepen. The 2s10s have started but the 3m10s has not budged.
- The market can stay irrational for a long time, but in addition, this is the most telegraphed recession in history.
According to the Bank of American analyst Michael Hartnett, on average, US recessions have started 6 months after inversion of the 3m10s curve and 11 months after inversion of the 2s10s. Guess where we are? 6 months and 10 months. Sounds like the recession is right around the corner. As the recession begins, the yield curves will begin to steepen. The 2s10s have started but the 3m10s has not budged. There is always something different in every market, but keep an eye on the 3m10s. Hartnett makes a very interesting observation. Speed of yield curve steepening was very quick in disinflationary cycles (1990s-2020), much slower in inflationary cycles (1970s-1980s); if recession imminent, the ongoing inversion of 2s10s (rather than positive-sloped) strongly suggests this is an inflationary cycle & fits with “sell the last rate hike” analysis.
The market just seems like it is being dragged higher. Most investors are trying to sit on their hands and wait out the recession, but the computers and 0DTE options traders keep lifting the market. They are being led by a handful of tech stocks. The thing that worries me is that the transport stocks and semiconductors are not playing along. If this were a sustainable rally, then those two would be reaching for new highs. The push higher is due to systematic strategies and could be further exacerbated by FOMO if those on the sidelines lose patience. Oil is struggling. China’s reopening is not a barn burner. Credit is tightening and housing prices are starting to fall. These are all indicative of a recession. Recessions are generally not good for stocks, and the last reading of GDP was just over 1.1% down from 2.6%. Things are not going in the right direction, and bankers are slowing loan growth. I’ve been here before, like in 2007. I sold my house in June 2007 waiting for a crash, but the market just kept chugging right along for another 6 months. The market can stay irrational for a long time, but in addition, this is the most telegraphed recession in history. When everyone is prepared for something to happen, something else will.
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Recession Imminent?