The Near-Perfect Recession Indicator

Transcript

Ken Fisher:

In 2025, I'm asked pretty often about, you know, "are we entering recession", "are we in recession", "has a recession started"? I saw that there was a weak labor jobs report coming out of BLS, and remember that the—take the L out of that, and it's just a different two-letter function. Been a lot of hoopla about "gotta cut interest rates, or we're going to be in trouble," you can go on and on with the things that people worry about. And some of these worries are legitimate, and some of them are ones that I've spoken about in the past— things like, you know, what will be the impact of the tariffs, etc. And thinking about all that stuff is perfectly valid.

Of course, the reality in economics and in capital markets is that the leverage really is in thinking about what other people don't think about that's important. And I'm going to give you one simple little indicator. I mean, people say, "are we in a recession?" Well, I know a way to tell if you might be in recession, or you know you're not— and it's basically 100% flawless. There's no real exceptions to it.

In over 100 years, it's near perfect. It's as perfect as you can get. You may love your spouse more than I love my spouse, but I guarantee you, it's more perfect than your spouse is. Now, here's the way it works—and more perfect than you or I are. Just to be clear, relative to you versus, let's say, your spouse. Paul Samuelson, a legendary economist, said when I was a teenager, a long time ago—almost 60 years ago—that the stock market has forecast, he said something like, you know, seven out of the last five recessions, something like that. And that's true. But sometimes the stock market, like in 2022 or 1987, goes down when there's no recession. Here's the part nobody thinks about. You do not ever get a classic business cycle recession— what you think of as a recession— the only exception in my lifetime I'll come back to, it's been Covid, which was not a normal recession, but more of a government-induced contraction with the lockdowns.

Where the stock market didn't peak beforehand, as measured by the S&P 500, and in more modern times— the last 50 years— the world stock market as a whole, the stock market always peaks first. If the stock market has not peaked, if it's hit a high just recently—as I'm speaking, as this video is being recorded, stock market hit a new all-time high today— in the US and in the world. It is falling for months before you ever enter a recession. Now, mind you, when you enter a recession, there isn't a bell that goes off and says, "you're in recession". That doesn't happen. There's an entity that comes back later and is officially the measure of when a recession begins and when the recession ends.

The stock market always falls before a recession starts, and sometimes it falls when it doesn't; but if it hasn't fallen, you know a recession hasn't started and you know you've got a few months— because it falls for a few months before you enter a recession. You really only have to start worrying about "are we in a recession" when you've seen the stock market fall for a few months. Now, mind you, just so, in the same way, exactly in reverse and also with perfection, the stock market always bottoms in a bear market bottom before a recession is over. So, it actually tells you when to start looking for better economic times ahead, although those better economic times ahead are, again, going to be three, six, nine months before you get to those better times. But the stock market, once it starts rising off the bottom of a bear market, is telling you: better times ahead, better times ahead, better times ahead.

Yes, sometimes the stock market falls when you don't get a recession, but you don't get a recession unless the stock market falls for a few months. So, what does that say to you as you look at this video? You don't got to worry about a recession in the US or global economy. Maybe some individual countries overseas screw themselves up, there's always little countries growing themselves up. But for the US or the world as a whole, you're not in recession until you've seen the market fall for about three months or more. You can worry about it then.

When we get to that point, I'll be back talking about recessions again. And thank you very much for listening to me. Hi, this is Ken Fisher. Subscribe to the Fisher Investment YouTube channel. If you like what you've seen. Click the bell to be notified as soon as we publish new videos.