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In advance of 2023, the recession drum beats were so loud it was deafening. Market pundits warned that as the Fed raised interest rates, it was just a matter of time before the economy entered a recession.
But it’s July now, and so far, no recession. It appears that the economy is slipping into an expansion rather than moving toward a recession.
The first quarter gross domestic product expanded at a 2% rate, and the job market appears in good shape. Meanwhile, the stock market, considered a lead indicator, rallied in the first half, catching some by surprise.
Those in the “just a matter of time before a recession” camp point to the yield curve. It remains inverted, with the interest rate on 2-year Treasury notes higher than on 10-year Treasury notes. Historically, an inverted yield curve has signaled a recession.
The accompanying chart shows that the current market rally has lasted roughly nine months, which is about the length of the market’s downtrend in 2022. While the Standard & Poor’s 500 remains well below the high, the downtrend and the uptrend are starting to look similar.
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