In March, our analysis of leading economic data indicated that the development of a recession remained likely and we expected the data flow to begin weakening. As anticipated, the deterioration was gradual at first, before accelerating during the last two months. As shown on the following graph from the latest weekly commentary from fund manager John Hussman, the trend is now sharply lower in new orders, order backlogs and overall economic activity as measured by the ISM and Federal Reserve survey data.
Our computer models continue to suggest that the data will eventually indicate the US entered a recession sometime in the May to July range. This prediction aligns closely with forecasts from many other highly reliable sources such as the ECRI, Hussman Funds and Bill Gross at PIMCO. Although the stock market continues to live in denial of this likely outcome, the treasury markets do not. For example, the 10-year Treasury note yield has been trending sharply lower for the past four months and today it opened at a new low for the secular bear market from the early 1980s.
As always, it is important to remember that a long-term top is a process, not an event. Cyclical highs are confirmed by a series of breakdowns, the next of which could occur during the next several sessions. Therefore, it will be important to continue monitoring market behavior closely.
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