the yield curve is one of the most robust recession predictors and has signaled a recession may be coming since mid 2022 in contrast us stocks as measured by the sp 500 are up materially from the lows of last october and only just below yeartodate highs seemingly rejecting recession fears yet fixed income markets see the fed potentially cutting rates by the summer perhaps reacting to a us recession the evidence from the bond markets the recessionary evidence at least from fixed income markets is mounting the 10 yield treasury yield has been below the 2 year yield consistently since last july that is is called an inverted yield curve and has signaled a recession fairly reliably when compared to other leading indicators building on that fixed income markets see almost a nine in ten chance that the federal reserve cuts rates by september of this year that’s something the fed has repeatedly said they won’t do on their current forecasts yet a recession could cause it to happen in contrast the stock market shows some optimism the sp 500 is up 7 yeartodate as the market has shrugged off fears of contagion from recent banking issues in particular tech stocks have rallied in contrast more defensive sectors such as healthcare utilities and consumer goods have lagged in 2023 this suggests that the stock market is taking more of a ‘risk on’ position and is perhaps less worried about the economy that said the stock market is a leading indicator of the business cycle it may be that stocks see a recession but are now looking past it to growth ahead and are factoring in the lower discount rates that a recession might bring as interest rates decline also the us stock market is relatively global so the fate of the us economy is a key factor in driving profits but not the only one monitoring unemployment data will be key though the yield curve is a good longterm forecaster of recessions it is less precise in signaling when a recession starts unemployment rates can offer more accurate recession timing unemployment edged up in february suggesting a recession may be near but we’ve also seen monthly noise unemployment two similar monthly unemployment spikes during 2022 both proved false alarms however if we see a sustained move up in unemployment from the low levels of 2022 that may be a relatively clear sign that a recession is here economist claudia sahm estimates that a sustained 05 increase in unemployment rate from 12month lows is sufficient to trigger a recession unemployment rose 02 from january to february 2023 so maybe we’re on the way there of course the jobs market performed better than expected in 2022 and it could do so again still fixed income markets do suggest a 2023 recession is coming stock markets don’t necessarily share that view