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Members of D.A. Davidson & Co.

Recession Indicators: Quite Strong

"In aggregate, the current readings from the [recession] dashboard are among the best in modern history, consistent with the current state of the U.S. economy. The stock market, however, is not the economy. While a robust economic backdrop should support strong earnings growth, some of this positive news may already be priced in because of the forward-looking nature of equity markets. Consequently, the best years for economic growth have gone hand-in-hand with more mixed but above-average stock market performance. Further, it isn’t unusual to see a correction of over 10% in periods of economic strength, as investors try and handicap just how much growth will slow in the following year. 


This pattern is consistent with our unchanged outlook for healthy stock market gains in 2021, albeit with increased volatility and more muted performance compared with last year. As the economy approaches the one-year mark since the end of the recession (in our view – the NBER has not yet announced anything) – the ClearBridge Recovery Risk Dashboard turned yellow one year ago, at the end of May 2020, and green the following month – many investors are contemplating the transition from early- to mid-cycle. However, it may be a bit premature to declare the end of the early-cycle phase of the current recovery just yet.  We believe that the hand-off will occur later this year, which will have implications for equity market leadership and volatility. Ultimately, any pullbacks during this shift represent a buying opportunity for long-term investors given the underlying health of the economy and minimal near-term recession risk."


(Recession Indicators: Quite Strong dated 06/01/21 by Jeffrey Schulze, CFA & Investment Strategist, and Josh Jamner, CFA & Investment Strategy Analyst with ClearBridge Investments, LLC)


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