True, no single economic indicator can capture more than a fraction of the complexities in an $18 trillion economy. And the record of accurately timing recessions is mixed at best. That said, if there is any scenario that matters for markets, it is a recession. Periods of economic contraction have a pronounced effect on asset class returns.
Yet despite the significance of recessions, few today appear worried. Volatility remains low and multiples high. However, the CFNAI is suggesting that, at the margin, we should all be a bit more concerned about the prospect of one.
Russ Koesterich, CFA, is head of asset allocation for BlackRock’s Global Allocation team.