Jeffrey Gundlach relies on recession indicators, just three to be precise and already one is flashing red. 

Jeffrey Gundlach, known as the bond king of the fixed income investing world has taken to the stage to tell investors what he is watching right now.

Jeffrey Gundlach relies on recession indicators and at the top of his list is the annual change in America’s index of leading economic indicators

America’s index going into negative territory would be an indication of a pending recession, according to Jeffrey Gundlach.

Jeffrey Gundlach noted that the downward trend in this metric was at the epicenter of the market turmoil at the start of 2016.

“Jeffrey Gundlach relies on recession indicators and at the top of his list is the annual change in America’s index of leading economic indicators”

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Jeffrey Gundlach relies on recession indicators such as America’s index, which comprises of several economic indicators

For example, it looks at macro data such as real GDP (Gross Domestic Product), Producer Price Index (PPI), Consumer Price Index (CPI) and Current Employment Statistics (CES). The main index also gauges household sentiment, such as the consumer confidence survey and housing starts.

Moreover, it looks at the velocity of money M2.

Jeffrey Gundlach relies on recession indicators, other than America’s index is when the US unemployment rate moves above its 12-month moving average 

The US unemployment rate has oscillated between mid to low 3 percent for most of last year. But Jeffrey Gundlach notes that the US unemployment rate has always crossed above its 12-month moving average when the US is heading into a recession.

The US unemployment rate breaching its 12-month moving average is worth watching over the coming few months. 

But Jeffrey Gundlach has also noted that this metric has delivered false positives in the past.

Jeffrey Gundlach notes that the US unemployment rate has always crossed above its 12-month moving average when the US is heading into a recession

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Jeffrey Gundlach relies on recession indicators such as the inverted yield curve

An inverted yield curve occurs when the long-term debt instruments have lower yields than short-term debt instruments of the same credit quality. The yield curve is a graphical representation of yields on similar bonds across a variety of maturities. 

The 2-year 10-year yield curve inversion often serves as a prelude to a recession because it suggests that investors are flocking to the safety of long-maturity treasuries as they see no opportunity in taking high risks in stocks, particularly during an economic downturn. 

“the 2-year 10-year yield curve inversion played out in August and October 2019” – The Wealth Training Company

Jeffrey Gundlach relies on recession indicators and one of the three already mentioned flashed red

Indeed, the 2-year 10-year yield curve inversion played out in August and October 2019. 

Without the Fed’s continuing multi-billion dollar monthly purchases of short term treasuries the 2-year 10-year yield curve inversion would probably be visible today.