The official dating body for US recessions, the NBER, announced last month the US
reached the peak of its expansion in February and is now contracting. The NBER defines a
recession as “a significant decline in economic activity spread across the economy, normally
visible in production, employment, and other indicators”. Now we are in a formal recession, the
two most pertinent questions are when will it end, and what are the market implications?

Typically, the S&P is already rallying after the NBER announces a recession (top-left chart). This
is as expected given the lags associated with when the NBER makes its official announcement,
which has been up to 21 months after the peak in activity. As to the length of the recession, this
one may be remarkably short. The top-right chart shows the leading-coincident ratio before
recession ends. Generally it bottoms about two months beforehand. Today, though, we can see
the ratio has shown a V-shaped bounce. If this persists, the NBER may call the trough in activity
before many think, with they themselves acknowledging the recession “may be briefer than
earlier contractions”. However, calling the end of the recession in real time – as we aim to do – is
much more beneficial than waiting for the NBER’s announcement. The bottom-left chart shows
that the market bottoms on average 3-4 months before the recession ends, but by the time the
NBER announces it, the market moves sideways on average over the next year (last chart).

Source: Bloomberg, Macrobond and Variant Perception