The economy is showing signs of weakness and I believe there’s a good chance the U.S. is currently in the middle of a recession. If not, it will probably be in one by the end of this year.
Here are some data I’m keeping track of to make my financial decisions ahead. 🙂
Unemployment rate: 3.6%
The labor market is very tight right now. Companies are finding it difficult to attract workers. When this rate drops too low a recession typically ensues. The thing I’m watching for is the reversal. If the next reading comes in above 4.0%, then there could be trouble on the way.
5-Year breakeven inflation rate: 3.03%
This graph shows the market’s future inflation expectations. It usually drops a lot during recessions. This could be a problem if it’s too high because it means the Federal Reserve may need to tighten monetary policy more aggressively which would add selling pressure on the stock market.
CBOE equity put/call ratio: 0.66
This graph shows how bullish or bearish the stock market is. I’m looking for a spike in this ratio, usually above 0.85, which as historically corresponded with maximum capitulation in the stock market, and likely to indicate the end of a bear market.
S&P 500 p/e ratio: 19
The price to earnings ratio of the S&P 500 index is now below its 10 year average. It’s currently still dropping. But a meaningful reversal could mean the start of a new bull market cycle. So I am keeping an eye on this ratio.
Random Useless Fact:
People generally live easier lives today, but complain more.