The Yield Curve and Recession Risks

In this latest edition of LPL Street View, LPL Financial Director of Research Marc Zabicki takes a look at our statistical interpretation of a comprehensive indicator that we believe can help pinpoint recession risk.

While yield curve inversions are a big factor when measuring the risk of recession, they’re not the only factor.  In fact, a yield curve inversion measure is only one of the 10 components that make up The Conference Board’s Leading Economic Indicators Index (LEI). To determine recession risk and get a fuller understanding of the economy’s underlying strength, LPL Financial believes it’s important to look at all of these components. Today, many of the components of LEI are relatively strong, leading us to believe that a U.S. recession may not be in our immediate future. For example, the slope of the LEI can determine the economy’s momentum. Currently, the slope tells us that the Leading Economic Indicators are still rising, but at a decelerating rate.

Though our economic strength is not what it once was at its post-COVID-19 peak, the overall components of the LEI remain relatively strong.  Because of this, we believe that a U.S. recession may still be a ways off.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth in the podcast may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. All indexes are unmanaged and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All index data is from FactSet.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

This Research material was prepared by LPL Financial, LLC. 

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