Indicators are updated weekly as part of the Market Analysis service.
We have revised the bull-bear market leading indicator to improve its responsiveness, stripping it down to a composite of five key indicators. At present, two of five indicators signal risk-off, indicating medium risk of a US bear market.
Treasury Yield Curve
The 10-year/3-month Treasury yield spread has been positive for more than 120 days, and the S&P 500 is above its 12-month weighted moving average, confirming the risk-on signal.
The 10-year/3-month Treasury yield curve has reliably inverted before every recession since 1960, with two exceptions:
- In 1966, the yield curve inverted, the S&P 500 fell 22%, and the NBER declared a recession. However, the NBER later changed its mind and airbrushed the recession from its history.
- A steep yield curve inversion took place, lasting from November 2022 to November 2024. The Fed hiked interest rates steeply in 2022 after keeping the fed funds target rate (lower bound) at zero for almost two years during the COVID-19 pandemic. However, Treasury Secretary Janet Yellen increased the issue of T-Bills, flooding financial markets with liquidity to counter the effect of rate tightening. At the same time, the Fed ran down its reverse repo facility, injecting more than $2 trillion to achieve the same ends. Treasury also introduced debt buybacks — replacing illiquid “off-the-run” securities with new liquid issues — to reduce bond market volatility and improve liquidity. The combined weight of these exceptional measures helped the economy to avoid a recession.
Fed Rate Cut Cycle
The last FOMC meeting kept the fed funds rate target range unchanged at 3.5%-3.75%. There have been no rate cuts for more than 75 days, so the signal has reverted to risk-on.
The interest rate cycle indicates whether the Fed perceives the economy as expanding or contracting. A declining fed funds target rate is a leading indicator, signaling risk-off. However, if there is no further rate cut within 75 calendar days, or the fed funds target is raised, the signal reverts to risk-on.
Freight Transport Activity
The Cass Freight Shipments Index improved to 1.041, but the 12-month moving average remains in a downtrend, signaling risk-off. The index highlights broad freight shipping levels in the mainstream economy, and a rise or fall of more than 3 basis points signals risk-on or risk-off, respectively.
Heavy Truck Sales
Heavy truck sales increased to 35,900 units in June, up from 34,900 in May, but the 12-month average fell to 32,300, so the signal remains at risk-off.
Heavy truck sales reflect the transportation industry’s confidence in the economic outlook. A fall of more than 10% below the preceding peak signals risk-off, while a 10% rise above a trough indicates risk-on.
Employment in Cyclical Sectors
Cyclical employment eased to 27.533 million in June, down from 27.540 million in May, 139K below the previous peak of 27.671 million in September 2024. A 300K decline from the preceding peak would signal risk-off.
Rises or falls in employment in cyclical sectors are a leading indicator of the economy. The Manufacturing, Construction, and Transportation & Warehousing sectors typically account for the majority of job losses during a recession. A combined decline of more than 300K in these sectors would signal risk-off, while a rise of 500K from the latest trough signals risk-on.
Conclusion
The Bull-Bear indicator suggests the US economy is slowing, but is not yet in a recession.
Related Links
Acknowledgments
- Prof. Robert Shiller: CAPE 10 Data
- S&P Global: S&P 500 Sales and Earnings Estimates
- Federal Reserve of St Louis: FRED Data
- Bureau for Economic Analysis: Motor Vehicles Data
- Morningstar: Dow Jones Industrial Average Statistics