S&P 500: Indicators Signal Rising Recession Risk

2025-04-02 18:27:43 ET

Summary

• The economy shows signs of weakening with rising unemployment, increasing consumer delinquencies, and a spike in business bankruptcies, indicating higher recession probabilities.
• Reliable indicators like the inverted yield curve, widening credit spreads, and outperforming consumer staples sector suggest a recession is likely within the next 12 months.
• Warren Buffett's Berkshire Hathaway is hoarding cash, signaling preparation for tougher economic conditions and potential opportunities to invest at lower valuations.
• The Fed faces a dilemma between controlling inflation and preventing a recession, with limited room to lower interest rates due to persistent inflationary pressures.

We have been in recession watch for some time, but so far, the economy has proven resilient. Admittedly, part of the reason has been significant stimulus in the form of government deficits and a lowering of interest rates by the Fed. A few months ago it appeared that a "soft landing" would be achieved by the Fed and a recession averted, but more recently that scenario looks less likely, while a recession looks increasingly probable....

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