Recession Buy Indicator Says: It’s a Recession So Buy Stocks

That’s contrarian, of course.  Barry Ritholtz over at The Big Picture has a good explanation.  Here’s the nutshell: the "Recession Buy Indicator" looks at the four indicators in the Index of Coincident Indicators, and signals when each of these has declined over the past six months.  That’s a rough measure of whether the economy is in recession, and the signal says buy stocks.

Right now the signal says BUY.

Why would it do that?  The stock market tends to be a leading indicator of the economy.  By the time it’s obvious that we are a recession, we’re stocks are already down.  Once everyone realizes we are in recession, the market is ready to look forward to the recovery.  As Ritholtz notes, there are some exceptions that would clobber an investor who mindlessly followed the rule.  Nonetheless, it’s another bull signal.