According to B. Riley Wealth’s chief investment strategist Paul Dietrich, the inverted Treasury yield curve has been a reliable recession indicator for over 18 months. This occurs when the yield on the 2-year US Treasury exceeds that of the 10-year Treasury. Since 1955, an inversion in the 2-10 Treasury spread has accurately predicted every recession. The yield curve has been flashing this warning since November 2022, coinciding with B. Riley’s leading economic indicators pointing towards an imminent recession.
While some economists have toned down their recession warnings, Dietrich predicts a return to recession calls within the next six months. He cautions against those claiming a new bull market is starting and that a recession can be avoided this time. Despite his bearish outlook, Dietrich maintains that historically, recessions can take up to 28 months to officially begin after being signaled by the yield curve and leading indicators.
Additionally, stocks appear to be overdue for a correction, as the US is currently in the midst of its longest-ever secular bull market spanning 15 years. This suggests that investors should prepare for potential economic downturns in the near future and remain skeptical of optimistic forecasts that may not be accurate based on historical indicators.
In conclusion, while the US economy has displayed resilience, Dietrich warns that a recession is imminent based on historical indicators such as the inverted Treasury yield curve and leading economic indicators pointing towards an imminent recession. Investors should remain prepared for potential economic downturns and avoid any hype about new bull markets or predictions of avoiding a recession this time around.
