Economic Indicator
Recession or no recession!
History has shown investing in equities or high yield bonds during a recession can be catostrophic to your portfolio. It’s wise to reduce or eliminate exposure to the asset classes at the earliest possible convenience. This recession indicator attempts to provide a signal of either:
CAUTION – The economy is weak based on historical economic landscape.
COMFORT – The economy is normal based on the historical ecomic landscape.
The Recession Indicator Probe compiles eight separate data points into one easy-to-follow indicator. The numeric value of these together determines the probability of the United States entering a recession. Of course, the ideal time to exit stocks is PRIOR to a recession, not after it has already started!
The common definition of a recession: Two consecutive quarters of negative economic growth.
The Recession Indicator Probe definition: A significant decline in economic activity spread across the economy, lasting more than a few months.
Recession Indicator Probe is a quantitative, completely mechanical and emotion free way of looking at the strength of the US Economy. When the reading is high, it warns of coming slow downs and serves as a warning sign to investors. While its use is flexible, it is generally a good idea to use caution when investing in higher risk US assets, such as stocks and high yield bonds when the reading is in red. When the indicator reads “above 50″ we feel there is a high probability the US Economy will worsen in the following month, and therefore, stocks should be invested in with caution. Generally, when this occurs, we reduce stock exposure by 50% on our investment strategies. When the indicator reads “below 45″ we feel there is a high probablity the US Economy is within its normal range and therefore should should be able to sustain growth.
Recession Indicator Probe Chart
| Month | Probe Reading | Action for Next Month | S&P 500 Month Performance |
|---|---|---|---|
| Dec. 2007 | 65.6 | Use Caution | -0.86% |
| Jan. 2008 | 77.5 | Use Caution | -6.12% |
| Feb. 2008 | 83.4 | Use Caution | -3.48% |
| Mar. 2008 | 89.4 | Use Caution | -0.60% |
| Apr. 2008 | 92.4 | Use Caution | 4.75% |
| May 2008 | 83.4 | Use Caution | 1.70% |
| Jun. 2008 | 76 | Use Caution | -8.60% |
| July 2008 | 64.1 | Use Caution | -0.99% |
| Aug. 2008 | 60 | Use Caution | 1.22% |
| Sept. 2008 | 52.5 | Use Caution | -9.21% |
| Oct. 2008 | 64.5 | Use Caution | -16.90% |
| Nov. 2008 | 71.5 | Use Caution | -7.48% |
| Dec. 2008 | 86.4 | Use Caution | 0.78% |
| Jan. 2009 | 89.4 | Use Caution | -8.57% |
| Feb. 2009 | 74.5 | Use Caution | -10.99% |
| Mar. 2009 | 71.52 | Use Caution | 8.54% |
| Apr. 2009 | ? | ? | ? |
Recession Indicator Probe Factors …
Case-Shiller Home Price Index
Initial Jobless Claims
Chain Store Sales
TED Spread (difference between 3 mth. Labor and t-bill)
Fed Funds Futures
Core Capital Goods Orders
Survey Of Business Confidence
Consumer Comfort Index
Keep in mind that investing carries risk and these indicators do not guarantee against loss. It is also not a recommendation or investment advice. You should always consult with your own financial advisor to consider your goals, tolerance for risk, and financial condition before making any investment decisions.
Please remember: The indicator reading for this month should affect NEXT month’s investing decisions. This ensures plenty of time to think about changes you may want to have ready BEFORE the month begins. Past readings is no guarantee of future results. Use at your own discretion. Reading is supplied without warranty. While care has been taken to ensure calculation is posted accurately, 401kinvesthlep.com cannot guarantee the posting for public domain is accurate at all times.
