Concerns regarding a possible recession have persisted in recent months as the United States economy faces uncertainty stemming from elements such as a possible prolonged interest rate cut decision.
Notably, the economy has exhibited some resilience in recent months, partially alleviating fears of a downturn.
However, in an X (formerly Twitter) post on April 18, the data-driven investment research platform Game of Trades warned of tough times ahead, with several indicators suggesting a recession is on the horizon in the coming months.
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The assessment revolves around the 10-year/3-month US Treasury curve, an indicator historically known for its predictive ability regarding economic contractions. Currently, the indicator stands at a concerning +511 days, implying a time lag between its inversion and the onset of a recession.
Based on historical patterns, Game of Trades‘ analysis anticipates a recession in the latter half of 2024.
“Just cause people have forgotten about a recession, doesn’t mean it’s not coming. This chart shows the time lag between an inversion and a recession.<…> A recession is nearing in H2 2024,” the platform stated.
Implication of the yield curve
Notably, the yield curve illustrates the connection between short-term and long-term interest rates and has long been esteemed as a dependable indicator of economic downturns.
At the same time, the 10-year/3-month US Treasury curve is vital in predicting recessions. When the curve inverts—meaning that short-term interest rates exceed long-term rates—it historically foreshadows an economic downturn.
The inversion suggests investors have less confidence in the short-term economic outlook, often pointing a contraction in economic activity ahead.
Market opportunity
However, amidst the grim forecast, the analysis pointed to a potential opportunity in the market. Despite the looming threat of recession, Game of Trades highlighted that the stock market could still experience significant gains.
“It can still [market rally] reach 6000 points based on the inverse H&S pattern. But that doesn’t mean a crash isn’t around the corner when a recession unfolds later this year,” the platform added.
It’s interesting to note that during recessions, the stock market typically reverses any gains accumulated in the preceding year.
Overall, in response to the analysis, the platform warned market participants to “buckle up” for what promises to be a wild and unpredictable year ahead.
In the meantime, as reported by Finbold, Wellington-Altus Private Wealth’s chief market strategist, Jim Thorne, also warned that the global economy is on the brink of a perilous financial collapse
