The Five Forecasters still favor the continuation of the current bull market and no recession. The Five Forecasters, which we first introduced in 2014, are five indicators that, collectively, have historically signaled the increasing fragility of the U.S. economy and a transition to the late stage of the economic cycle and an oncoming recession.
Currently, these indicators are generally sending mid-cycle signals (similar to our cycle clock from Outlook 2016). Three of the five indicators are flashing a warning signal and suggest the cycle may have moved past the midpoint, while two of them are still benign. Here we review these five indicators, which still signal that this bull market may continue and that the latest S&P 500 correction may stop short of a 20% decline.
Bear market declines of 20% or more for stocks are not always accompanied by a recession, although more often than not, that is the case. Accordingly, we believe these indicators can be used to give some advance warning of an impending bear market. The average S&P 500 decline in a bear market historically is about 33%, compared to the 12% peak-to-trough decline from the all-time high on May 21, 2015, through January 20, 2016.