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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 Fed has not announced a rate cut 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 plunging Cass Freight Shipments Index warns of contracting economic activity, 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
The 12-month average of heavy truck sales declined to 32,300 units in April 2026, continuing the risk-off signal. 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 improved to 27.540 million, 132K below its preceding peak of 27.671 million in September 2024. A decline of 300K 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.
Leading Indicator Past Performance
Our test of the new format shows improved responsiveness. An investment of $100,000 in the S&P 500 Total Return Index in January 1990 would have grown to $4.1 million by April 2026, but a strategy that switches proportionately to AA-grade corporate bonds as the Bull-Bear risk-off signal increases would have reached $5.7 million.
A strategy that switches proportionately to Gold instead of AA corporate bonds, however, would have accumulated to $15.3 million over the same period.
If risk-off is zero, the portfolio is invested 100% in the S&P 500 index. The weighting to equities is reduced as the risk-off measure rises. When the risk-off signal reaches 40%, for example, exposure to the S&P 500 is reduced to 60% with a 40% weighting in Gold. If the risk-off signal reaches 100%, the portfolio is fully invested in Gold.
Conclusion
The Bull-Bear indicator suggests the US economy is slowing, but is not yet in a recession.
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