September 2019:

A combination of factors has changed the market direction to point downwards for the first time since 2009 when we started the recovery after the Great Recession! What does this mean? According to our algorithm, the probability for a significant decline in the S&P 500 is greater than it continuing to make new highs. Some of the factors pushing the market in this direction include the possibility of the unemployment rate hitting a bottom, the ISM index in decline and below 50, a drop in New Orders, and declining 10-Year Treasury rate. Whether we’ll see a significant decline in the S&P 500 in the near future remains to be seen, but for now we will start looking into how we can mitigate the potential risk. Stay tuned!

July 2019:

Back in April, the model indicated the probability of the market hitting a new high was greater than it going into a recession. In this month, the forecast became reality. Since April though, the yield curve has officially inverted meaning that the yield on the 10-year Treasury note is lower than the yield on a 3-month bond. Although the inversion of the yield curve is a good indicator for the risk of a recession, we don’t know if the recession will materialize in 6 months, 18 months, or even longer based on the indicator alone. The goal of Recession Spy is to accurately forecast the onset of a major recession within a month of it materializing. As of now, economic indicators contributing to the upward momentum still include low unemployment, retail sales, manufacturing, durable goods, and a flattening of the federal funds rate. The same weak indicators also continue to persist from April namely new housing permits data and the 10-year treasure rate. Overall, the probability is still greater of the market going up and hitting new highs rather than going into recession as it was back in April.

Unemployment Rate
Retail Index
ISM Index
M2 Money Supply
Manufacturer’s New Orders
New Housing Permits
10-Year Treasury Rate
Federal Funds Rate
Consumer Price Index
Volatility Index

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