US economist Henrik Zeberg is raising concerns about a possible severe recession in the next two years, warning of potential implications as dire as the Great Depression of 1929. His analysis, based on historical data and market indicators, highlights several warning signs that indicate an economic downturn may be imminent.
One of the main indicators that Zeberg pointed out is the Piper Sandler Recession Indicator chart, which compares two-year Treasury yields with the Federal Funds Rate. This chart shows a pattern in which shifts in market yields precede actions by the Federal Reserve, often foreshadowing economic declines. Additionally, high inflation rates at 3.4% echo levels seen in times of economic turmoil in the past.
Another signal that Zeberg highlighted is the Relative Strength Index (RSI), a measure of momentum in price movements. Large bearish structures in the RSI have historically signaled significant market crashes, and the current ‘Mega Bearish Structure’ suggests a similar decline is on the horizon, raising concerns about future economic stability.
Recent months have also seen rising speculation about a potential recession as various economic indicators start showing red flags. Declining treasury yields often lead investors to seek safe-haven assets in times of economic uncertainty, indicating growing concerns about an upcoming market downturn. There are also concerns about a possible blow-off top in US equities and cryptocurrencies, which could mean a sudden and drastic decline in asset prices following an unsustainable surge driven by speculation.
Investment research platform Game of Trades has highlighted the predictive ability of the 10-year/3-month US Treasury curve, suggesting a recession may hit in the latter part of 2024. As large-cap companies lead recent market rallies and cryptocurrency consolidates, fears about timing and impact continue to mount.
Despite these warnings, many investors remain optimistic that markets will continue to recover following their recent slump due to COVID-19 pandemic uncertainty. However, Zeberg’s analysis serves as a reminder that it’s always important to keep an eye on macroeconomic indicators when making investment decisions.
