- The most closely watched recession indicator is saying a downturn won’t happen for another two years.
- That’s because the Treasury futures market suggests the yield curve inversion will last until 2026, Credit Suisse’s Jonathan Golub said.
- Golub predicted a downturn to strike in August 2025 based on historical data.
The most closely watched recession indicator is telling markets that a downturn won’t materialize for another two years, according to Credit Suisse’s chief stock strategist Jonathan Golub.
In an interview with CNBC this week, Golub pointed to the difference between the yield on the 2 and 10-year Treasury notes, which is currently flashing its largest inversion in 42 years. When short term bond yields surpass longer term yields, it is a notorious indicator of an incoming recession.
“The yield curve is the most valuable, the most useful indicator of when your recession is going to be, and the yield curve has been inverted now for several months,” Golub said, adding that the Treasury futures market shows the yield curve staying inverted until January 2026.
That implies the yield curve staying inverted for 26 months from when the 2-year yield first surpassed the 10-year yield in October – an “extraordinary” length of time, Golub said, considering that the yield curve has typically only inverted 6-18 months in previous cycles.
“The only logical assumption is that the next recession isn’t going to start until at least sometime in 2025,” Golub said, predicting a downturn would strike in August of that year based on historical data.
That’s further out than other commentators have predicted. Bank of America CEO Brian Moynihan said he saw a technical recession striking in the third quarter of 2023, and though JPMorgan CEO Jamie Dimon has said it’s possible the US may avoid a downturn, his team is also preparing for a mild recession in the middle of this year.
But though a recession could be delayed, more pain is still coming for the economy, Golub said, predicting that the US will grapple with “stagflation lite” in the interim.
Stagflation—a dreaded combo of high inflation and low growth—has typically led to prices and unemployment rising into the double-digits, Golub said. He predicted inflation would hover around 3.5-4% over the next few years, while unemployment hovered around 3%-4%. Economic growth would also likely stay low at around 1%.
“It’s kind of like an uninspiring economy. Annoying inflation, but nothing dramatic. Weak economic growth, but nothing that looks like a recession. Not really great for stocks,” he said.
Other market commentators have forecasted lackluster or dismal returns in stocks this year. On the more bearish end, Morgan Stanley’s chief stock strategist warned of a 26% stock market crash, as higher interest rates weigh on equities.
