September 1, 2024

Recession fears and concerns about an economic slowdown contributed to August’s early market volatility and meant a bumpy ride for investors. Although concerns about an economic slowdown have diminished for now, the possibility cannot be ruled out. 

An inverted Treasury yield curve, where short-term interest rates are higher than long-term rates, has been a reliable predictor of U.S. recessions, although the lag time between inversion and an official recession can be significant. Since 1990, recessions have occurred after the yield curve exits an inversion. The current inversion, which is the longest since the early 1980s, is still in place. The U.S. economy has outperformed despite the post-pandemic sharp rise in inflation and the Fed’s aggressive tightening campaign. The last four U.S. recessions, which have varied in length, have generally set in one to two quarters after the yield curve normalizes. This is an important detail to keep in mind as the Fed embarks on its easing cycle which we anticipate will be on the agenda in September.

The U.S. economy added far fewer jobs in 2023 and early 2024 than previously reported, a sign that cracks in the labor market are more severe and began forming earlier than initially believed. The Labor Department said monthly payroll figures overstated job growth by approximately 818,000 jobs in the 12 months that ended in March. This unusually large revision suggests employers added about 174,000 jobs per month during that period, down from the previously reported pace of about 242,000 jobs — a downward revision of about 28 percent. This sign of erosion may prompt a higher-than-expected rate cut by the Fed in mid-September.

The yield on the 10-year Treasury note stands at 3.91%, and the yield on the two-year Treasury yield is at 3.93%. Year to date all major indices are still positive with the Dow, S&P 500, and NASDAQ at 10.28%, 18.42%, and 18.00%, respectively.

*Disclaimer: This report is a publication of Marchand Faries Financial Management, Inc. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.  All expressions of opinion reflect the judgement of the author as of the date of publication and are subject to change.