The four-week moving average of weekly initial unemployment claims provides a real-time indicator of the labor market (chart). It has been improving recently as the four-week average of jobless claims has been falling. Employers may be less concerned about the possible adverse impact of Trump's tariffs on the economy and on their companies. They should also be gaining confidence in the economy's resilience as validated by the record highs in the S&P 500 and the Nasdaq.
We've been tracking the daily recession odds as reflected in Polymarket.com (chart). They've dropped significantly from around 60% in late April and early May to just 18% currently. There is an inverse correlation between the recession odds series and the S&P 500's forward price-to-earnings ratio. Investors are also gaining confidence in the economy's resilience and are willing to pay a relatively high valuation multiple for stocks. This is all consistent with our Roaring 2020s scenario, in which a recession remains a low-probability outcome for the rest of the decade.
