For months we have been forecasting a recession by June 2025. This was based on the inverted yield curve moving out of its inversion back to its usual curve. The inverted yield curve refers to when short-term yields exceed long-term yields. When this happens, it signals a too hot economy and too high inflation.
As the curve returns to normal, it signals that the economy has slowed and that inflation has moderated.
It is important to note that monetary policy takes time, roughly 3-9 months, to makes its way from spoken/written policy to its actual impact.
A recession is typically measured by two quarters of Gross Domestic Produce Decline (GDP). Subject to revision, we have the first quarter of 2025 GDP number contracting.
Given the tariff and layoff impacts, we have no reason to change this forecast. We expect quarter two GDP to also be negative. If so, this means we would be in a recession.
So, what’s ahead? How would a recession impact the stock and bond markets, if we indeed are in a recession?
After turning bearish on March 27th, 2025, ATM returned to bullish on April 28th, 2025. [It has remained bullish through 6/30/2025.] If a recession unfolds from here, we need to see a few more things unravel. Most specifically, we need to see a weakening jobs market. We don’t see that currently, although one leading indicator has negatively jumped.
Historically, a recession is negative for stocks. If one unfolds, we expect ATM will turn bearish again. As mentioned, we send out Hotline emails about changes between issues. If you don’t get one email us at
Info@SelectionsAndTiming.com
For bonds, a recession, if accompanied by lower inflation,
would be a positive. We would expect bond yields to decline and bond prices to rise.
It appears that a recession is still far from investor minds. They may not like the uncertainties of changed minds and policies practically daily, but the impacts have yet to be determined. It simply takes time for policy to wend its way through reality.