How to Use iMarketSignals for Recession Signals

The four Recession Indicator models on iMarketSignals should provide early warnings of oncoming recessions. Historically, the prospect of an economic downturn (recession) has corresponded to declining stock prices. It is therefore prudent to reduce stock market allocations or exit the stock market prior to recessions.

Weekly Updates relevant to Recession Signals

(i) The Recession Indicator FRR2-10: This indicator is a long leading indicator, 14 month average before the recession starts, and the markets may still rise after this indicator falls below 1.0.

Fig-3.2-9-16-2022.png 9/23/2022: Latest update only available to Bronze members

9/16/2022: The Forward Rate Ratio between the 2-year and 10-year U.S. Treasury yields (FRR2-10) has inverted begin August 2022 and is signalling a recession — the average lead time of this signal is 14 months.

A description of this indicator can be found here.

(ii) The Recession Indicators BCI :  On past performance, if BCIp falls below 25 a recession may begin about 20 weeks later, markets may have peaked or are about to peak. If BCIg falls below zero a recession followed historically on average 11 weeks later, markets have peaked.

BCI-8-25-2022.png 9/22/2022: Latest update only available to Bronze members

8/25/2022: The BCI  does not signal a recession

(iii) The Recession Indicators COMP : Similar to BCIg,  if this indicator falls below zero a recession starting a few weeks ahead is signaled by the model.

Fig-3.-8-26-2022.png 9/23/2022: Latest update only available to Bronze members

8/26/2022: show=0]

 

Market Signals Summary:

The Hi-Lo Index of the S&P 500 as well as the MAC-AU reentered the markets.  However, the MAC US, iM-FT Timer as well as the S&P 500 Coppock Indicator remain disinvested from the markets.   The bond market model prefers high beta (long) bonds. The Forward Rate Ratio between the 2 and 10 year rates inverted beginning August thus signalling a recession. Also the growth of the Conference Board’s Leading Economic Indicator is sinalling a recession. The Gold Coppock is invested in gold, so is the iM-Gold Timer. The Silver Coppock model is dis-invested in silver.

Stock-markets:

Fig-2.-5-29-2015 The MAC-US model exited the US stock markets end April 2022.

 

(iv) The Unemployment Rate Recession Model:

The model signals the start of a recession when any one of the following three conditions occurs:

  1. The short exponential moving average (EMA) of the unemployment rate (UER) rises and crosses the long EMA to the upside, and the difference between the two EMAs is at least 0.07.
  2. The unemployment rate growth rate (UERg) rises above zero, while the long EMA of the unemployment rate has a positive slope, and the difference between the long EMA at that time and the long EMA 10 weeks before is greater than 0.025.
  3. The 19-week rate of change of the UER is greater than 8.0%, while simultaneously the long EMA of the UER has a positive slope and the difference between the long EMA at the time and the long EMA 10 weeks earlier is greater than 0.015.
Fig-8.-8-5-2022.png 9/2/2022: To view latest update please log in

8/5/2022: 4>
The 9/2/2022 BLS Employment Situation Report shows that the May unemployment rate increased by 0.2% to 3.7% .

 

CAPE-Cycle-ID

Fig-9a-5-29-2015Fig 9a depicts the CAPE-Cycle-ID and the year-on-year rate-of-change of the Shiller CAPE;  the level switched from +2 to 0 end of June 2022. The spread 5-25 month moving average  of the S&P real is negative this indicator now avoids the markets. This indicator is described here.

To avoid the bear market, exit stocks when the spread between the 5-month and 25-month moving averages of S&P-real becomes negative and simultaneously the CAPE-Cycle-ID score is 0 or -2. (read more)

 

Estimated Forward 10-Year Returns

Fig-9b-5-29-2015The estimated forward 10‐year annualized real return is 6.4% (previous month 7.0%) with a 95% confidence interval : 5.0% to 7.7% (5.7% to 8.3%). Also refer to the  Realized Forward 10-Year Returns vs. Inflation Rate Fig-9c-5-29-2015We may be in a rising inflation period with a falling CAPE-MA35 ratio similar to 1964-1973. This implies very low or negative 10 year forward annualized real returns, much lower than the returns indicated by regression analysis shown in the Estimated Forward 10-Year Returns.

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iM-GT Timer

Fig-10-5-29-2015The iM-GT Timer, based on Google Search Trends volume indicator exited the stock markets beginning Septenber 2022. This indicator is described here.

 

0 comments on “How to Use iMarketSignals for Recession Signals
  1. jlombard says:

    is there an update to the DAGS chart available somewhere?

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