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Bear markets tend to be deflationary and fear-based events, which eventually triggers demand for defensive-oriented bonds and, therefore, looking at hard data from the bond market can help with the assessment of recession probabilities. So what is the current Treasury yield spread suggesting is the probability of a recession this year?
So writes Chris Ciovacco (ciovaccocapital.com) in edited excerpts from his original article which can be read in its entirety HERE.
[The following article is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
2007 Recession Odds Were:
The Wall Street Journal recently published two recession probability charts as presented below. The first one tells us that the odds of a recession, based on hard data, were sitting at roughly 40% in late 2007. Was the hard and observable data helpful? Yes, the hard data was in hand before the S&P 500 dropped from 1468 at the beginning of 2008 to 666 on March 9, 2009 or 54%.
2015 Recession Odds Are:
Q: How does the exact same chart, on the exact same scale, look in 2015?
A: Much better.
Investment Implications – The Weight Of The Evidence
Could it be different this time? Sure, it could be, but fear is fear, and eventually it has to start showing up in the hard data but we need to see it rather than anticipate it and, remember, the data was waving red flags in late 2007 before stocks plunged an additional 54%; no anticipation was necessary…
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