The Russell 2000 has lost roughly 18% of its value peak to trough, and that is not good news for the US economy.
During the past twenty years, coincident and lagged values of the index have been a reasonably good predictor of GDP. In the regression below I use a polynomial distributed lag of quarterly changes in RTY vs quarterly changes in real GDP (coincident and four quarterly lags).
RTY gives somewhat better results than the S&P 500. This is far from perfect but close enough to merit attention.
Will D. Goldman please comment on flattened/inverted yield curve.
Will D. Goldman please comment on flattened/inverted yield curve.
2-year treasury compared to 10-year treasury is what to watch and this has yet to invert.
2-year treasury compared to 10-year treasury is what to watch and this has yet to invert.
An inverted curve often indicates that the Fed has tightened too far (the market expects rates to fall over time from the present level of short-term rates). The Russell 2000, though, has been a far better predictor of GDP than the yield curve. Adding the yield curve to the regression equation of GDP change vs. lagged values of change in the Russell in various ways doesn’t improve the forecast.
An inverted curve often indicates that the Fed has tightened too far (the market expects rates to fall over time from the present level of short-term rates). The Russell 2000, though, has been a far better predictor of GDP than the yield curve. Adding the yield curve to the regression equation of GDP change vs. lagged values of change in the Russell in various ways doesn’t improve the forecast.