There is nothing wrong with this recession prediction tool since 1966 – it has clear information on Wall Street

Although Wall Street is like the catalyst, investors may ignore the largest economy.
A forecasting tool used by the Federal Reserve Bank of New York maps potential troubles for the U.S. economy.
Thankfully, the economic and stock market cycles are not linear.
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Wall Street hasn't been hurt by catalysts lately. Following the climb for nearly two and a half years Dow Jones Industrial Average (djindices: ^dji),,,,, S&P 500 (snpindex: ^gspc)and Nasdaq Composite Materials (NasdaqIndex: ^i tocie)This is inspired by the rise of artificial intelligence (AI), with investors being returned by President Donald Trump in 2025 by President Donald Trump’s ever-changing tariff policies, wild volatility in Treasury bond yields and Euphoria’s stock share.

But, question whether Wall Street and the investment community lack a bigger prospect: the U.S. economy.

Although the economy and stock markets are not associated with the hips, the company's revenue usually moves with the flow of the domestic economy. According to a recession forecasting tool, the tool was nothing wrong in 59 years and was only incorrect after exams until 1959 - for the U.S. economy and stock market, the situation may not be as optimistic as it appears on the surface.

Image source: Getty Images.

There are no data points or prediction tools on Earth that guarantee the U.S. economy and/or what will happen next on Wall Street. But there yes Throughout history, metrics, forecasting tools and events closely related to the Dow Jones, S&P 500 and Nasdaq Composites were selected. For example, the significant decline in M2 money supply has historically led to economic downturns and difficult times on Wall Street.

Perhaps Wall Street’s biggest focus is currently related to Trump’s tariff policy, and everything about the tool for the possibility of a recession in New York.

The New York Fed's recession forecasting tool analyzes the differences (yield difference) between 10-year bonds and the three-month Treasury bill to calculate the likelihood of a recession in the next 12 months.

In a healthy economy, the treasury yield curve tilts upward and tilts to the right. That said, longer bonds mature in 10 to 30 years have higher yields than fiscal bills for one year or less. The longer your funds are tied to the interest asset, the higher the rate of return should be.

When the yield curve is reversed, it is where the fault begins to brew. This is the rate of return on short-term fiscal bills that are higher than the rate of return on long-term Treasury bills. Often, this shows investors worry about the outlook for the U.S. economy.

US recession probability chart — The only false positive for the New York Fed's recession probability tool occurred in 1966. YCHARTS's U.S. recession probability data. The grey area represents our recession.

The New York Fed's recession probability forecast is updated monthly, with the May 2025 update showing that the probability of a U.S. recession is 30.45% by April 2026. While this far exceeds the chance of recovery in 2023 with a 70% chance of more than 40% of the time, it is the highest reading that has occurred in forty years, which is the highest reading since 196% or more - and it ends up reading more than 32% of the reads, which read 32%.

However, this correlation is more than just looking at the percentage of recession probability. Typically, previous recessions can not be achieved until the yield curve remains unchanged and begins to rise sharply. You can see this dynamic in the following 10-year and three-month fiscal value comparison.

Distribution chart of fiscal yields over 10 years to 3 months — 10-year to 3 months fiscal yields spread data through YCHARTS. The grey area represents our recession.

Since we have made the steepest inversion from the 10-year/three-month yield curve over forty years, it is natural that the yield curve will take longer to try to be correct on its own. This irrelevance to the earnings curve, coupled with the history of the New York Fed's recession probability tool, strongly points to the recession in the United States.

It is worth noting that the initial reading of the U.S. gross domestic product (GDP) in the first quarter showed an economic contraction of 0.3%. While this is much better than the Federal Reserve predicted by Atlanta's GDPNOW model, it still remains the same as the New York Fed's recession indicators as far as the shrinking U.S. economy is concerned.

Based on Bank of America Global research is around two-thirds of the S&P 500 index peaking between 1927 and March 2023. periodnot before, our recession.

Read financial newspapers critically. — Image source: Getty Images.

Seeing a very successful predictor predicting a recession may not be what you as an investor and/or American working for you want to hear. However, the economic and stock market cycles in both directions fluctuate - and are quite disproportionate.

Regardless of fiscal and monetary policy, recessions in the economic cycle are normal, healthy and inevitable aspects. While higher unemployment and wage growth are often accompanied by recessions, the downturn may be known for its short life span.

In the nearly 80 years since the end of World War II, the U.S. economy has passed more than a dozen official recessions. The average length of these 12 economic downturns is only 10 months, and there is no more than 18 months.

On the other hand, on the same timeline, the typical period of growth for the U.S. economy is about five years. The economic boom and abuse cycle is more than just a mirror, it explains why the U.S. economy has grown significantly over the long run.

This huge gap between optimism and pessimism can also be observed on Wall Street.

In 2023, analysts at Custom Investment Group released a dataset with social media platform X, which compared the length of each S&P 500-year bull and bear market, dating back to the beginning of the Great Depression in September 1929.

Customized customization found that the average bear market downturn in the benchmark S&P 500 lasted 286 calendar days, about 9.5 months. The dataset also shows that the longest bear market recorded was 630 calendar days during the oil embargo in the mid-1970s.

On the other hand, the average bull market has been around 1,011 calendar days, spanning nearly 94 years. More importantly, if the current bull market for the S&P 500 S&P is calculated as today, more than half of all bull markets (14 of 27 points) will last longer than the longest bear market since September 1929.

When historical data finally show the U.S. economy, investors are too focused on a brief decline, which makes no sense at all. and The stock market spends disproportionately on the well-known sun.

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Bank of America is an advertising partner for Motley Fool Money. Sean Williams holds a position at Bank of America. Motley fool has a position at Bank of America. Motley Fool has a disclosure policy.

There is nothing wrong with this recession prediction tool since 1966 - it was originally a clear message published by Motley Fool