Updated: Apr 15
While there are always anomalies that are never seen coming, historical data has become much more accurate at predicting future market downturns. With the start of the 10th year of the longest running credit cycle in recent history, perhaps it is worth considering three recent shifts that historically have been good predictors of a correction to come.
Yield-Curve Inversion - On March 22 the Treasury yield curve inverted for the first time since the last financial crisis. Historically, after a yield-curve inversion the market shifts within 18 months.
Inventory Pileup - According to the Commerce Department, durable goods inventory at the wholesale level surged 11.7% from January year-over-year hitting a record $415 billion. While sales are still increasing year-over-year, they hit a peak in September and have since begun to flatten.
Freight Volume - According to the Cass Freight Index, in February freight shipment volume in the US fell 2.1% year-over-year. This marks three months in a row of year-over-year declines coupled with retail growth dropping to 1.6% and 2.3% year-over-year in January and February respectively.
It can be argued that the services-based economy - finance, healthcare, insurance, etc. - is what is keeping the economy growing. A massive part of the $20.5 trillion US economy, according to the Commerce Department selected services rose 6% to $15.5 trillion. As long as the services sector continues to grow, there cannot be a downturn. However, it is worth considering the adjustments in the known shifts occurring coupled with the recent chatter of changes in Fed policy as signals that there is prudence in preparation.