What Happens to Russell 2000 ETF (IWM) When the Leading Economic Index Turns Negative?
The Leading Economic Index anticipates recessions by 6-12 months. What happens when its six-month change turns negative, warning of contraction ahead?
How Russell 2000 ETF (IWM) Responds
Scenario Background
The St Louis Fed's Leading Economic Index (USSLIND) aggregates forward-looking indicators: yield curve, stock prices, building permits, initial claims, manufacturing orders, and consumer expectations. The six-month annualized change is the most reliable recession signal: a decline below negative 2% has preceded every US recession since 1960 with a median lead time of six months.
Read full scenario analysis →Historical Context
USSLIND six-month changes below -2% have preceded each recession since 1970. The 1973-1975 recession saw the LEI turn negative in late 1973 with peak six-month declines of -5%. The 1980-1982 double-dip produced two separate LEI collapses. The 2001 recession was preceded by LEI turning negative in early 2000. The 2008 recession showed LEI turning negative in December 2007, the exact month the recession began. The 2022-2023 period saw LEI turn negative for over 20 consecutive months without trigge...
What to Watch For
- •Six-month LEI change below negative 3% annualized
- •Credit spreads widening above 500 bps confirming the LEI signal
- •Yield curve un-inverting (bull steepener)
- •ISM Manufacturing falling below 45 confirming broad-based weakness
- •Continuing claims rising above 2.0 million confirming labor deterioration
Other Assets When the Leading Economic Index Turns Negative
Other Scenarios Affecting Russell 2000 ETF (IWM)
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