Sahm Rule Exceeds 0.5%: Imminent Recession Warning

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As of July 2024, the Sahm Rule indicator has surpassed the critical threshold of 0.5%, now standing at 0.53%. This is a significant signal as the Sahm Rule is highly regarded for its accuracy in predicting economic recessions. Historically, every time the Sahm Rule has exceeded 0.5%, a recession has followed, making it an almost foolproof indicator with nearly 100% accuracy. This level of reliability makes the Sahm Rule a "no-brainer" tool for forecasting economic downturns.

The Sahm Rule has successfully predicted all U.S. recessions since the 1970s, detecting both hard and soft landings:
- 1974-1975 Recession (Hard Landing)
- 1980 Recession (Hard Landing)
- 1981-1982 Recession (Hard Landing)
- 1990-1991 Recession (Soft Landing)
- 2001 Recession (Soft Landing)
- 2007-2009 Great Recession (Hard Landing)
- 2020 Recession during COVID-19 (Mixed)

The only notable near-false positive occurred in June 2003, shortly after the 2001 recession ended. However, this was a brief anomaly, and the Sahm Rule quickly returned to lower levels.

With the Sahm Rule exceeding 0.5%, a recession is highly likely within the next eight months, projecting a potential economic downturn around March to April 2025. This suggests that we may already be entering a recession or are on the brink of one. Given this strong signal, it is prudent for investors to prepare accordingly.

The Federal Reserve, in its July 31, 2024 meeting, indicated that it might lower interest rates by 0.25% in September. However, given the current economic data and the Sahm Rule's reading, the probability of a 0.5% rate cut has increased significantly. This shift indicates a rapidly deteriorating economic outlook, with unemployment rates expected to rise sharply in the coming months.

1. Avoid Major Index ETFs: ETFs like SPY (S&P 500) and QQQ (NASDAQ-100) may not be ideal investments during this period due to their vulnerability to market downturns.
2. Long-term U.S. Treasury Bonds: Bonds typically perform well as interest rates drop during recessions. Key ETFs to consider include:
- TLT (iShares 20+ Year Treasury Bond ETF)
- TMF (Direxion Daily 20+ Year Treasury Bull 3x Shares)

Given the likelihood of a recession and the Fed potentially cutting interest rates sharply, long-term U.S. Treasury bonds are poised for significant gains. Recent market movements already reflect this, with TLT and TMF showing strong performance.

The Sahm Rule's breach of the 0.5% threshold is a clear warning of a potential recession by early 2025. Investors should act now to adjust their portfolios, avoiding major index ETFs and considering long-term U.S. Treasury bonds to mitigate risks and capitalize on potential opportunities during the economic downturn.

Given the current economic data and the Sahm Rule's reading, it is crucial to stay informed and make decisions based on reliable indicators.