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 the US economy has displayed resilience, Dietrich still believes a downturn is on the horizon. 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.
Despite some economists toning 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. Dietrich maintains a bearish outlook, previously predicting a possible mild recession this year with potential stock declines of up to 49%.
In conclusion, while the US economy has defied expectations, Dietrich warns that a recession is imminent based on historical indicators. He advises investors to remain skeptical of optimistic forecasts and prepare for a potential economic downturn in the near future.