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Slow-moving bear market and recession signals have been in play for months/years; just one example being steepening yield curve, but fast-movers will time things better

Slow-Moving Indicators

In NFTRH we have consistently watched the slow moving process in yield curves since they were deeply inverted with the media proclaiming “imminent recession”. We have consistently shown why that was a false narrative and merely harvesting of the public’s eyeballs.

We also identified and tracked the negative divergence by the 2yr Treasury yield to the Fed Funds rate, another super slow mover. To focus the timing of a bear market and recession we need multiple indicators working together.

All through 2024 we documented how the Biden administration ginned the macro, conveniently into the all-important presidential election. The slow moving indicators remained in play and the more immediate and dynamic indicators were held at bay through Biden stimulus operations.

More Dynamic (real-time) Indicators

Recently one dynamic indicator, the VIX, finally played out to the theme we planned for it with its divergence to the S&P 500. The markets tanked and VIX spiked. However, VIX is now being bludgeoned back down as the sentiment rally morphs from minor bounce to bigger bounce or possibly, something more.

A companion to the VIX has been High Yield Spreads, which during the Biden admin’s “pull out the stops” reflation activity last year was pounded into the sub-floor of its recent history.

High Yield spreads rise into risk-off and counter-cyclical situations. They rise sharply into an economic bust, much like a yield curve steepens into a bust. They just do it much more dynamically.

Of note, the last time the HY spread got this low was immediately prior to what most call the “Great Recession” and what I called Armageddon ’08. Elastic bans tend to get stretched as far as possible before they snap.

The spread tanked to its historical limits last year as daddy Biden (or those handling his economic business, including Yellen and her colleague, Powell) made sure the economy remained reflated. The ways and means we’ve noted in the past are beyond the scope of this post.

The spread has recently risen from that extreme low, much like yield curves rose from their extreme inversion lows. Curves did put on a retest and that could be the case here as well. Especially if the stock market puts on some kind of laser show as all that pent up bear sentiment gets released. A classic final suck-in, if you will.

But generally, it will suit market players well to keep an eye on the High Yield spread along with many other market indicators, from short-term dynamic like this one to the slow movers.

A bear market and recession are very likely coming. But it’s a process and proper management of it should involve much more than looking at nominal stock or index charts or lagging economic data (like most of what is published in the mainstream).

In short, there’s a lot going on out there and catching the bear market and recession involves discipline and work.

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