Feeling that economic anxiety lately? I’ve been noticing it too. With the trade wars and market volatility, some economists are raising concerns about a possible recession.
Certain signals have historically preceded economic downturns with remarkable consistency.
The yield curve inversion – when short-term interest rates climb above long-term rates (like they have recently) – has predicted recessions within 6-18 months. The last five times this happened, an economic contraction followed, though timing and severity varied.
I also watch closely for Fed policy pivots from hiking to cutting rates. This reversal typically signals the central bank is concerned about economic weakness. Historically, when the Fed abruptly shifts from fighting inflation to stimulating growth, it’s because they’re seeing troubling data.
What I find most intriguing is that these warning signs often appear before recession becomes obvious to most observers. In 2007-2008, key indicators were flashing red about 4-6 months before unemployment claims dramatically spiked.
If you’re concerned about economic uncertainty, it might be worth considering diversification. Many investors look to assets like gold during these periods, which has historically performed differently than stocks during recessions.
Please don’t hesitate to reach out to us with any questions you may have.
May you be safe and well during these uncertain times.
Todd Sawyer, Director of Client Education
Colonial Metals Group