There is plenty of edginess in investment circles these days as more than a few forecasters are saying ‘What goes up must come down’. This means the stock market has been on a strong bull run for years and a downturn has to be in the cards.
But economist Peter Anderson, a Canadian teaching in the United States who does forecasts for the CEO forum TEC Canada, says not so fast. As he points out, a noted American economist once suggested the stock market predicted nine of the last five recessions. In other words, the equity market is not a good indicator. He prefers to use the yield curve. That one has been right every time for 50 years.
Don’t worry about the mechanics – it means this is when interest rates on long-term bonds fall below short-term rates. At this point, the U.S. rates which set the trend are still in the proper perspective. There is still some energy left in this bull market and uncertainty in the investment community is likely related to tariff battles, not fundamentals.