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Wasn't There Supposed to be a Recession?

Wasn't There Supposed to be a Recession?

August 15, 2023

In advance of 2023, the recession drum beats were so loud it was deafening. Market pundits warned that as the Fed raised interest rates, it was just a matter of time before the economy entered a recession.

But it’s July now, and so far, no recession. It appears that the economy is slipping into an expansion rather than moving toward a recession.

The first quarter gross domestic product expanded at a 2% rate, and the job market appears in good shape. Meanwhile, the stock market, considered a lead indicator, rallied in the first half, catching some by surprise.

Those in the “just a matter of time before a recession” camp point to the yield curve. It remains inverted, with the interest rate on 2-year Treasury notes higher than on 10-year Treasury notes. Historically, an inverted yield curve has signaled a recession.

The accompanying chart shows that the current market rally has lasted roughly nine months, which is about the length of the market’s downtrend in 2022. While the Standard & Poor’s 500 remains well below the high, the downtrend and the uptrend are starting to look similar.

What’s next for the economy and the stock market? I can’t tell you; I don't know the future. But I can tell you what’s next for us is to remain focused on your investment strategy, which reflects your goals, time horizon, and risk tolerance.