4 replies to this topic

[4caster]

The Sahm Rule was created by former FED economist Claudia Sahm. The rule goes like this.

If the current 3 mo. average unemployment rate rises by 0.5% points over the lowest reading

during the past 12 mos. a recession occurs. The lowest reading in the past 12 mos. was 3.4%

in April of 2023. The unemployment rate in Feb. was 3.9%. If the Mar. & April readings are at

least 3.9% the 3 mo. average would be 0.5% above the April reading giving a recession signal.

If the rates in Mar. & April are not above 3.9% all bets are off. When this rule was back-tested

it was shown to have predicted every recession in modern history and, more importantly I think,

it didn't predict a recession that didn't occur. We'll see what happens in the next 2 mos. 

[andr99]

in other words it didn't miss a recession and it didn't give false signals. Perfect indicator I would say, but how many months after the signal is given, does the stock market start to fall ?   

My projections say that till year end the stock market should rise. What happens then, I'm not sure. If my projections are good, maybe that 3.9% in March and April won' t be reached. 

[4caster]

Andr, this rule doesn't address how the mkt will react to a prediction of a recession, nor does it address

if the predicted recession will be mild or severe. However, there is a mountain of data on the internet

pertaining to how the mkt has reacted to a recession. if you turn out to be correct that the rate doesn't 

go to 3.9% in March & April then we won't see a recession. The question I have is what will the mkt do

if the rule calls for a recession? This mkt is fixated on the AI industry. If the rule calls for a recession I'm

kind of thinking that the Bulls will say that a recession won't negatively impact the AI industry possibly

resulting in a split mkt, the AI stocks vs. the "rest of the mkt". We'll see what happens.

 

[dhroz]

How can you trust the data from the BLS.?  

[4caster]

I don't trust the BLS numbers and therein lies the problem. We'll just have to wait and see

how this plays itself out over the next 2 mos.