It might seem a bit silly to pen a piece titled “Recession Watch” just a few days on from a US Commerce Department report that showed US Gross Domestic Product (GDP) grew (on a preliminary basis) at a 2.6% annual rate in the third quarter. Given such a positive print, along with a 3.5% unemployment rate and 10 million job openings for 5.8 million unemployed Americans a recession, one could argue, is among the least of our worries as we say goodbye to October and say hello to November (and for one more bit of good news, what an October it was for the markets as the S&P 500 gained 8.8% through 10/28).

At the risk of muddying the waters even more this week, some folks would argue we already experienced a recession as US GDP contracted – on a preliminary basis – approximately 1% during the first half of 2022 (many on Wall Street define a recession as two consecutive quarters of negative GDP growth; the official arbiter of our nation’s business cycle – The National Bureau of Economic Research or NBER – has both a more expansive definition of a recession and has yet to weigh in on the current business cycle).

With that all said, the reason we are on “Recession Watch” this week is the US Yield Curve, specifically the US 3 Month Bill to US 10 Year Note section of the curve as that section recently inverted – with the yield on the US 3 Month Bill higher than the yield on the US 10 Year Note – the first time that has happened since February of 2020 (see chart). The inversion of this part of the curve follows the inversion of the more closely watched US 2-Year Note to US 10-Year Note section, which has been inverted since July of this year. As we know, the US yield curve has historically inverted prior to a recession. And the reason we are only on “recession watch” now is, for our 2 cents, the more important and predictive part of the curve is the US 3 Month to US 10 Year section. A recession is not preordained, but the longer the US Federal Reserve maintains its hawkish policy stance, the more likely one becomes.

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The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Brinker Capital Investments, LLC, a registered investment advisor. 2063-BCI-10/31/2022