In the supplied chart which tracks U.S. unemployment rates back to 1968, the red line represents the three-month average U.S. unemployment rate while the blue line shows the change in the unemployment rate from recent lows. Grey bars represent U.S. recessions. The current increase in unemployment from recent lows has reached the level (~0.3%; red dotted line) which has been a leading indicator for prior U.S. recessions. As you can see, an increase in the unemployment rate of this magnitude has signaled the start of each of the last eight recessions since 1968, without exception and without false signals. Stated slightly differently, every time we’ve seen the U.S. unemployment rate increase by more than one-third of one percent from its recent lows, a recession has followed. You will also notice that once the increase in unemployment has crossed this threshold, it continues to increase (more job losses) until the end of the recession (grey bars). The reason this matters for investors is stocks are likely to perform very differently next year if the U.S. experiences a recession compared to if a recession can be avoided. Historically, the US stock market (i.e. S&P 500) performs very poorly during a recession. The average sell-off from peak to trough for the S&P 500 over the past seven recessions is 35.8%. The smallest sell-off for the S&P 500 during a U.S. recession was 17.1% in the late 1970’s while the largest recession sell-off (56.8%) occurred during the Global Financial Crisis of 2008. Conversely, history suggests the U.S. stock market could continue to experience positive returns in 2024 if a recession is avoided. We will continue to closely monitor U.S. unemployment data and its implications for a recession in the U.S. next year. Wishing you and your family a very happy holidays and we hope you have enjoyed reading our articles over the past year.