There is one market indicator with an unusually strong track record: it has preceded every US recession since 1950, with no confirmed false signals. It flashed ahead of downturns in 1973, 1980, 1990, 2001, 2008 and 2020.
That indicator is the yield curve.
The Federal Reserve monitors it closely and Wall Street tracks it constantly, yet it is rarely explained in mainstream coverage and almost never taught outside specialist finance courses. At its core, the yield curve compares short-term and long-term government bond yields. When short-term rates rise above long-term rates, the curve inverts — a signal that investors expect weaker growth ahead.
The most recent inversion began in 2022 and persisted longer than at any point in modern records. Historically, recessions have not begun at the moment of inversion, but when the curve starts to un-invert — as short-term rates fall back below long-term yields.
That process is now underway.
Based on more than seven decades of data, this phase has typically coincided with the onset of economic contraction, not the recovery. The same pattern was visible before the collapse of Lehman Brothers and again ahead of the Covid-era recession.
This is not a guarantee of timing, magnitude or market outcomes — but it is one of the most consistent warning signals the bond market has produced. In past cycles, many investors were not uninformed; they simply assumed risks would be clearly signposted when the danger became real.
They weren’t — and history suggests they rarely are.
Disclaimer: This content is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results.
