Yield curve, Employment rate, VIX Volatility, Buffet Indicator
While there is no one way to predict a recession, there are ways to begin tracking multiple factors that may collectively stand a much higher chance of predicting accurately the probability of one within a given time frame.
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1- The slope of the yield curve
Yield curves don't typically invert. When they do, it creates an anomaly worth looking at. An inversion occurs when the yield on short-term Treasury securities exceeds the yield on long-term Treasury securities. While it might not seem like much at first glance, the inverted yield curve is actually a rare occurrence that can act as the bellwether for an economic recession.
For more information please refer to my analysis: SHORT, Bellwether for US recession, The Inverted Yield Curve
2- Employment rate
In contrast to a narrowing of the spread between short- and long-term Treasury yields, a low unemployment rate usually suggests strengthening economic growth.
Historically, a trough in the unemployment rate also tends to be a reliable predictor of a business recession. As can be seen in panel 2, the unemployment rate tends to reach a trough shortly before an economic recession. Once the recession begins, unemployment rises sharply.
3- VIX Volatility Index
The CBOE VIX Volatility Index measures the expectation of stock market volatility over the next 30 days implied by S&P 500 index options. The current VIX index level as of April 26, 2019 is 13.14.
Also known as the Chicago Board Options Exchange Volatility Index (CBOE VIX), it is one of those frequently talked about indicators of the market's anxiety and concern over short-term future market performance.
Looking at panel 3, it is clear that it has experienced spikes that are coincident with recessions or market corrections. VIX won't give you a perfect prediction of what the stock market is about to do; but it can nevertheless provide evidence regarding what other investors are thinking about current conditions. VIX currently resides in the region of calm which mean investors don’t see significant risk that the market will move sharply, whether downward or upward. Based on a collation of indicators it is probable that we are seeing the calm that precedes the storm.
4- The Buffet Indicator
Is the ratio of a country’s stock market capitalization to the overall GDP of the country.
The way it works is that equities are overpriced when the total market cap of all equities surpasses the value of GDP.
But one could also refer to that as a bull market where equities are attractive because we expect financial markets to perform well. Buffett never said that this was an indicator of a downturn per se, just that it reflects the relative value of equities.
So as investors we need to decide the point at which perception exceeds reality, and that's what this indicator points to.
Please give us a like or a follow.
1- The slope of the yield curve
Yield curves don't typically invert. When they do, it creates an anomaly worth looking at. An inversion occurs when the yield on short-term Treasury securities exceeds the yield on long-term Treasury securities. While it might not seem like much at first glance, the inverted yield curve is actually a rare occurrence that can act as the bellwether for an economic recession.
For more information please refer to my analysis: SHORT, Bellwether for US recession, The Inverted Yield Curve
2- Employment rate
In contrast to a narrowing of the spread between short- and long-term Treasury yields, a low unemployment rate usually suggests strengthening economic growth.
Historically, a trough in the unemployment rate also tends to be a reliable predictor of a business recession. As can be seen in panel 2, the unemployment rate tends to reach a trough shortly before an economic recession. Once the recession begins, unemployment rises sharply.
3- VIX Volatility Index
The CBOE VIX Volatility Index measures the expectation of stock market volatility over the next 30 days implied by S&P 500 index options. The current VIX index level as of April 26, 2019 is 13.14.
Also known as the Chicago Board Options Exchange Volatility Index (CBOE VIX), it is one of those frequently talked about indicators of the market's anxiety and concern over short-term future market performance.
Looking at panel 3, it is clear that it has experienced spikes that are coincident with recessions or market corrections. VIX won't give you a perfect prediction of what the stock market is about to do; but it can nevertheless provide evidence regarding what other investors are thinking about current conditions. VIX currently resides in the region of calm which mean investors don’t see significant risk that the market will move sharply, whether downward or upward. Based on a collation of indicators it is probable that we are seeing the calm that precedes the storm.
4- The Buffet Indicator
Is the ratio of a country’s stock market capitalization to the overall GDP of the country.
The way it works is that equities are overpriced when the total market cap of all equities surpasses the value of GDP.
But one could also refer to that as a bull market where equities are attractive because we expect financial markets to perform well. Buffett never said that this was an indicator of a downturn per se, just that it reflects the relative value of equities.
So as investors we need to decide the point at which perception exceeds reality, and that's what this indicator points to.
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