February 15, 2023

The start and end of a recession: Multi-asset signals

The inflation scare of 2022 and central bank monetary tightening to tame inflation, are now giving way to issues around the inflation-control/growth trade-off. Arguably the biggest question investors are asking at the start of 2023 is: will there be a recession in 2023? If so, how severe will the recession be?

We look at some forward-looking indicators from the two biggest asset classes, fixed income and equities, to find clues to the answer. We focus in this paper on the US as the sample, though there may be some cyclical implications for other economies from the US analysis. This is a substantial topic, and we will analyse additional issues in subsequent papers.


  • Despite claims that persistent inversion of the US 10s/2s yield curve in 2022/23 makes a US recession inevitable in 2023, closer inspection of yield curve dynamics since 1980 suggests this is not necessarily so
  • Previous cycles required confirmation in inversion of the 30s/10s yield curve for a recession to materialise, in all bar the Covid “Lockdown” recession in 2020, and a period of falling yields, but the 30s/10s curve has not yet inverted definitively
  • Variable lags between 10s/2s curve inversion and recession are also a feature
  • Apart from the slowdown in US house prices, which has characterised approaches to previous recessions, other asset classes do not offer decisive evidence of imminent recession
  • In the US equity market, growth stocks outperformed more often in the Russell 1000® Index in the 12 months before previous recessions (back to 1980), but value has outperformed growth in the Russell 1000 by nearly 22% in the last 12 months
  • Nor is there evidence of the pronounced weakening in small cap stocks relative to large ones that characterised the approaches to the GFC and Covid recessions in 2007 and 2020, when financing issues became paramount