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The yield curve bear signal has now lapsed, and this is a great opportunity to revise the bull-bear market leading indicator to improve its responsiveness. The Bull-Bear Leading Index is now stripped down to a composite of five separate indicators, which collectively signal a mild bear market:
Yield Curve
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.
The 10-year/3-month yield curve dipped below zero in April 2025, which extended the risk-off signal until April 2026, 12 months later. We have now reduced the maximum lag to 120 working days: the signal will revert to risk-on if the spread has been positive for more than 120 days and the S&P 500 closes above its 12-month weighted moving average.
Fed Rate Cut Cycle
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, while rising rates signal risk-on. We have again reduced the lag: if the fed funds rate is not cut within 75 calendar days, the signal now reverts to risk-on.
Transport Activity
The Cass Freight Shipments Index highlights broad activity levels in the economy. A rise or fall of more than 3 basis points signals risk-on or risk-off, respectively.
Heavy Truck Sales
Heavy truck sales reflect the transportation industry’s confidence in the economic outlook. The 12-month average of units sold plunged to 32.8K in April 2026. The fall of more than 10% below its preceding peak signals risk-off.
Employment in Cyclical Sectors
Employment in cyclical sectors — Manufacturing, Construction, and Transportation & Warehousing — typically accounts for the majority of job losses during a recession. Rises or falls in combined employment in these sectors are a leading indicator of the economy. A decline of more than 300K would signal risk-off, while a rise of 500K from the last trough would signal risk-on. Employment declined by 264K from its preceding peak of 27.671 million in September 2024, reaching 27.407 million in December 2025, but has since recovered to 27.501 million.
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