Don't Rely on Recession-Predicting Rules of Thumb

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The stock market is betting on a Goldilocks scenario. Jerome Powell forecasted a soft landing, but Apollo Global Management is leaning toward an optimistic “no-landing” scenario that just misses a recession. Regardless of which description you choose, all three are bets that a recession will not occur.

Assuming the markets, Apollo, and Powell are right, stocks may have already bottomed with a new high not too far away. Accordingly, investors should ignore numerous recession warnings and load up on stocks.

However, suppose the recession warnings, such as the yield curve and national and regional manufacturing surveys, prove prescient, as they reliably have. In that case, this will be a rough year for the Goldilocks soft-landing believers.

Recessions and stock prices are not the best of bedmates. To better appreciate what a recession is and how we can better track the odds of one, we lean on the arbiter of economic cycles, the National Bureau of Economic Research (NBER).