The Last Time These 3 Indicators Synced Up, the Market SHOCKED Everyone (It’s Happening Now)

It’s one of those “is the milk bad or just weird-tasting?” kind of moments in the market. Stocks are slipping, meme accounts are posting “funemployed” jokes at a record pace, and everyone from Wall Street to TikTok seems convinced we’re about to enter the economic version of a garage sale. And in the middle of it all, there’s still a crowd holding out hope for Jerome Powell to show up with a fresh rate cut like he’s Gandalf at the Battle of Helm’s Deep (he probably isn’t coming).

After two years of smashing the economy with rate hikes back in 2021/2022, Powell’s now stuck watching the storm he helped create. And while the Fed might start cutting rates soon, it’s unlikely to be the magic fix people are praying for. Especially when the data is starting to look eerily familiar.

Let’s start with the canary in the coal mine… or in this case, the 3-month/18-month Treasury spread. This is the indicator Jerome Powell actually likes (because the old 2-year/10-year yield curve is too mainstream now I guess), and forget the word “inverted”... this baby’s completely off the rails.

For instance, the spread just dropped to -113 basis points, its most negative reading since last October. More importantly, it had its worst one-day move since the global financial crisis. You remember that one, right? Housing bubble? Banks going belly up? Your dad canceling Christmas?

According to economist Jordan Rochester, recessions typically arrive 3–18 months after the Fed stops hiking. We’re now at 21 months and the only thing soft about this landing is investor confidence.

At the same time, retail investors are basically sitting in a dark room, listening to sad music, and refreshing their brokerage apps every 5 minutes. The American Association of Individual Investors (AAII) says bearish sentiment has topped 50% for five straight weeks. That’s only happened once since 2009. You know, the recession.

But here’s the ironic thing… historically, when retail investors are this pessimistic, the market has a habit of doing the opposite. Over the last 15 years, these periods of extreme fear have led to an average 22% gain in the S&P 500 over the following 12 months.

So yes, things look ugly now… but that’s often when the biggest upside quietly sneaks in. Just in case the economy wasn’t already walking a tightrope blindfolded, Trump decided to bring tariffs back like it’s 2018… but this time, he’s not playing small ball. He’s now proposing a universal 10% tariff on all imported goods, with even steeper penalties for certain countries: 54% for China, 24% for Japan, and 20% for the European Union.

For reference, when the average import tax moved from 1.5% to 3% in 2018, the S&P 500 dropped 19.8% in three months. But this round we’re talking about hiking to 10% (the highest since WWII) and possibly 20%, which would basically drag us back to Great Depression levels.

That’s probably why JPMorgan is now raising its global recession odds from 40% to 60%, and Zurich Insurance’s Guy Miller called the tariff strategy “brutal and clunky weapons that are likely to backfire.”

While we’re not technically in a recession, the market’s sure acting like we are. Bond markets are flashing warning signs. Investor sentiment continues to fall lower. Consumer sentiment just posted its sharpest three-month drop since 2020. And Google searches for “recession” are trending like it’s early COVID all over again. Even TikTok is picking up on it, with the “recession brunette” making a comeback (because when people stop getting their hair bleached, that’s apparently an economic indicator now).

Whether or not the economists have declared a formal recession, investors are already behaving like we’re in one. And markets are already reacting like the slowdown is here. But just remember, historically, this is when smart money starts looking for long-term opportunities. But timing matters. And right now, staying cautious while keeping your eyes open might be the best move. Because Powell’s cape is probably at the dry cleaners. And this time, nobody’s coming to rescue your portfolio but you.

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