No important economic data today, but since yesterday was an exciting day at the horse track, with the S&P 500 officially entering 10% “correction” territory, let’s update the quick and dirty forecasting model.

As an aside, 10% corrections typically happen about once a year. They are typically driven by some unexpected mini-crisis (e.g., a bank blowup), creating a panic. At about the 10% sell off level, a regulatory agency like the SEC, Treasury, or the Fed steps in and takes steps to resolve the situation. The mini-crisis passes, and stock prices quickly make up their losses, resulting in a “V” shape in the charts.

But this sell-off has been prompted mainly by T—-p’s personal economic predilection for tariffs, and his strategy of always escalating. There is no regulatory agency that can step in and resolve this issue. Which, needless to say, very much worries Wall Street, and is why the sell off started in real time as T—-p was making another tariff announcement.

The net result is that the S&P 500, which was up 40% YoY in the week just before the Presidential Election, is now only up 7.2% (blue in the graph below). And as I reported yesterday, the four week average of initial claims is higher by 8.3% (red, inverted):

(Click on image to enlarge)

The model simply requires that both stocks and initial claims to be negative YoY. Since my initial claims forecast requires claims to be higher by at least 10% YoY for even a yellow caution flag, the above graph is normed so that the 10% higher YoY level shows as 0.

The quick and dirty model is not forecasting recession at these levels, but it is closer than it has been in several years, and needless to say, the trajectory is not favorable.

Here is what the S&P 500 looks like on an absolute basis:

(Click on image to enlarge)

To turn negative YoY in the next few weeks, the S&P 500 would have to sell off by about another 4% to the 5250 level. A few more tariff escalations and retaliation by our (now former?) Allies might do the trick.

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