Recession Call, Bull or Bear Market, Banks at Risk?

By Victor Sperandeo with the Curmudgeon

Recession Watch:

Unless the business cycle has been repealed, a recession will occur this year.  Perhaps, it has already started?

Higher nominal and real interest rates, a continued regional banking crisis (see below), 13 consecutive monthly declines in the Conference Board’s Leading Economic Indicators, the across-the-board decline in commodity prices are all screaming RECESSION.  So is the most inverted yield curve in 40 years, which has always preceded a recession.

-->Please see the David Rosenberg interview (hyperlink) below for more on the likelihood of a recession starting this year.

But we have a very strong job market, you say?  

First, it should be noted that “employment” is a very long lagging indicator.  As an example, the NBER classified the beginning of the Great Depression in August 1929 when the U.S. government official unemployment rate was 0.04%. 

Next, many previous Curmudgeon posts documented that the BLS jobs reports are deeply flawed and greatly overstate the strength in the labor market.


A recession is statistically long overdue! It’s been 168 months since the end of the last real recession in June 2009. [We don’t count the two-month NBER classified “pandemic lockdown” recession ending in April 2020].

A few more ominous signs of a looming recession:

l  Q1-2023 corporate earnings have fallen for the second consecutive quarter and have not risen since Q2-2022.


l  Sales and profits were down in the all-important Retail sector, which is a proxy for consumer strength. Sales in the first quarter of 2023 were $967.0 billion, down from the $1,036.5 billion recorded in the fourth quarter of 2022.  Remember, that consumer spending represents nearly 70% of GDP.

l  Layoffs: Challenger, Gray & Christmas, the company that is the leader in providing layoff data, said they counted more than 80,000 layoffs in May, that’s up +287% from May 2022. Outside of the pandemic, this was the highest layoff number for any May since 2007.

l  As we noted last week, BLS reported that the average workweek fell to 30.3 hours in May (what happened to the 40-hour workweek?). The number of hours worked per week has been flat or down for four months in a row. If we used hours worked as our primary measure of employment, then this would be equivalent to the loss of -140K jobs in May.

l  Rising foreclosures: The most visible signs of stress in the economy are occurring in the Commercial Real Estate (CRE) market. This is particularly true for office buildings which continue to suffer low occupancy because of the work-from-home phenomenon. An article in the June 6th WSJ said that “35% of pooled securitized commercial mortgages coming due between April and December 2023 won’t be able to refinance based on current interest rates and the properties’ incomes and values.”

l  CRE Defaults: This past week saw the owners of the Hilton Hotel on Union Square in San Francisco and the nearby Parc55 Hotel walk away from their mortgages. Those are the second and third this year in San Francisco (The Huntington Hotel was foreclosed earlier this year.). According to a front-page SF Chronicle article, seven more San Francisco hotel properties are in danger of mortgage default.

l  Banking sector deterioration: Regional and community banks are heavily exposed to the CRE sector. As commercial property values fall and foreclosures mount, even those CRE loans that don’t default will have to be written down and monies set aside to cover expected loan losses. Owning banks stocks looks to be much riskier today than it was just a few short months ago.

Victor’s Market Positions and Comments:

Victor’s market positions, which have been in effect since December of 2022, are bullish on Gold and (especially) Silver, long Bonds, while short stocks (using the S&P 500). Victor has stated that “IF” there is No RECESSION then those positions would be losers.

Victor has purchased puts on the S&P and owns 6-month T-Bills in lieu of being long Bonds (till the Fed stops raising rates).  He has no position in any other commodities as inflation has been decreasing and will continue down. 

[Email the Curmudgeon if you’re interested in his market positions]

Victor’s CTA Indexes (originally branded by S&P as the Directional Trend Index/DTI) goes back to 1985 and tracks a 6 month exponential moving average to take or exit positions.  It does not trade stock indexes.

As of the end of May, the CTA Index is Short almost everything. In particular, it is Short the Euro, Yen, Swiss Franc, Aussie, Canadian $, T-bonds, T-Notes, Grains, Livestock, Energy, Copper, Precious Metals, Natural Gas and Coffee. Only Longs are Cocoa, Sugar, and Cotton.   These are intermediate trend trading positions and move back and forth rather quickly in non-trending markets. The index went short bonds, all currencies, and precious metals at the end of May.                                 

At the end of May 2023, the DJI, Russell 2000, Mid-Caps, the SP 600 Small Caps, the CRB Commodity Index and 490 of the stocks in the SP 500 stocks [1.] were all down for the last five months.

Note 1.  We wrote in last week’s column, “Shares of the 10 largest companies in the S&P 500 climbed 8.9%, while the other 490 S&P 500 companies lost 4.3%, according to Bespoke.

This chart of Tech Stock out performance speaks volumes:

The divergence between the seven or eight mega tech stocks and the rest of the S&P 500 is a rare event and is the singular reason the S&P is above its 200-day MA. 

Are We in a New Bull Market for U.S. Equities?

U.S. stocks are still in a bear market, despite numerous MSM reports last Thursday of a new bull, based on a (purely arbitrary) price increase of >20% in the S&P 500 from its October 12, 2022 closing low.  Where did 20% come from?  It has no historical meaning!                                                                             

Victor has elaborately classified bull and bear markets since 1896 using two metrics … Dow Theory (based on DJI and DJT) and the 200-trading day Moving Average (MA) of major stock indexes.

Dow Theory is not even close to calling a bull market as neither the DJI nor DJT has broken above their recent recovery highs.

l  DJI closed Friday at 33,876.78 +43.17 (0.13%) vs its 52-week high of 33,975.32 on December 13, 2022.

l  DJT closed Friday at 14,243.36 -157.80 (-1.10%) vs its 52-week high of 15,640.70 on February 2, 2023.

A bull market is in effect when stock prices are above their respective 200-day MA and that average is “sloping up.”  Conversely, when prices are below the MA and it’s “sloping down,” a bear market is in force. 

A bull case can ONLY be made for the NASDAQ 100, but that index is dominated by big tech so that index is really a sector - not a market. It’s very reminiscent of the 1998-2000 dot com stock bubble, but this time led by mega tech stocks not start-up companies.

As far as proprietary stock market indexes:

l  The Primary Trend Index (PTI) which was Richard Russell’s proprietary stock market indicator, has been neutral for a long time, moving sideways. It is now kept by the Aden sisters. 

l  Leuthold’s Major Trend Index (MTI) has been LOW NEUTRAL for months.

Also, the Advance/Decline line has been trending downward as per this chart (courtesy of the Aden Forecast and Stansberry Research:

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On Friday, U.S. stock market averages were all slightly higher, but breadth was negative:

l  NYSE A/D was 1,116/1,815; Up volume/Down Volume was 348,808,366/466,896,207.

l  NASDAQ A/D was 1,558/2,842; Up volume/Down volume was 2,066,621,290/2,313,325,053.

Big Investors are Selling Stock:

Companies and their largest investors are selling shares at a pace not seen in years as stock prices rebound.  Since the end of April, companies and private-equity firms have sold more than $24 billion worth of stock in so-called follow-on sales, according to Dealogic. More than $17 billion changed hands in May alone, well above the $6.9 billion monthly average last year. The sales were made at smaller discounts than usual, on average, reflecting a robust market.

Nearly half the sales have come from big shareholders like private-equity firms, which have been looking for creative avenues to sell companies—or parts of them—and return the money to the pension funds and others that give them capital. The typical playbook for private-equity firms is to buy companies they view as undervalued, streamline their operations and take the businesses public again or sell them at a higher price years later. The frozen initial-public-offering market and tepid M&A volume have made that more difficult.


Victor’s method of identifying bull and bear markets comes from over 130 years of study by myself and others.

A book that did similar studies is  The Stock Market Indicators, As a guide to market timing,” by William Gordon, January 1, 1968. Gordon shows returns of +18 % using these methods for stock market timing.


I have done +1000 of studies on MA ‘s but never did the +20% bull /-20% bear rule because in 57 years of research, I know this would fail. I’ll wager money if someone can show a profit of 5% since 1896. It is a ridiculous, absurd whimsical commentary made by talking head broadcasters for TV viewers.   

Financial Institutions at Risk!

According to Weiss Ratings, 42.3% of banks and 35.4% of credit unions will fail if we have a serious recession. 

Having a stellar track record, Weiss Ratings is the nation's only independent ratings agency that regularly evaluates the relative safety of all U.S. banks and credit unions.  Weiss has warned that 4,243 banks and credit unions could be vulnerable to failure in a recession. Among them, 1,210 institutions (or 12.8%) got a red warning flag, signaling risk of “imminent failure”, while 3,043 received a yellow warning flag, indicating risk of failure in a financial crisis or recession.



GDP Forecasts:

l  The AtlantaFed GDPNow model currently projects a 2.2% annualized GDP growth rate (after 10 Fed Funds interest rate increases over the last 14 months) for the second quarter of 2023.

l  The 10 Blue Chip (private economic forecasts) forecasts GDP at +0.75%.

l  38 panelists surveyed by the Federal Reserve Bank of Philadelphia predict annual-average over annual-average growth in real GDP of 1.3% in 2023.

I follow two renowned economists: Lacy Hunt and Dave Rosenberg to confirm my views on the U.S. economy. They feel the same as I do. 

Please view this Rosenberg interview for a discussion on the mounting recessionary headwinds that signal a recession in the second half of 2023.  He says that ~80% of Fed rate rises resulted in a recession while the other 20% resulted in a soft landing (due to exogenous conditions).  Also, Powell Fed has tightened into an inverted yield curve which greatly increases the risk of recession.  His cogent logic is well worth listening to!

Cartoon of the Week:

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End Quote:

“As designed, free market economics only help the citizens, which are why they are shunned, and repudiated by politicians.  The problem they have with the Austrian School Economic Principles and Milton Friedman’s monetary and free market economic policies are that they don’t make politicians powerful or rich!”

  …… Victor Sperandeo


Be well, stay healthy, wishing you peace of mind. Till next time…...

The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies, and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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