You can field corporate bond yields at Moody's whereas Treasury yield curve data is available from the U.S. Department of Treasury.
The yield curve between long-term and short-term investments is another indicator of what the market expects of growth in the future. When the yields on long-term (10-year) Treasury bonds are close to or lower than short-term (three-month) Treasury bills, a recession could be headed our way. When the yield curve is flat or inverted, short-term securities have to pay a higher yield to attract investors, who think the Fed will decide to reduce the federal funds rate to boost the economy.
- Index fund -- A fund of stocks that represent a particular index.
- Moving average -- The average price of a security over a specific time period used to spot pricing trends by flattening out large fluctuations.
- Risk -- The probability that the return will be less than expected.
- Yield curve -- A graph that shows the relationship between yields and maturity dates at a given point in time.
See the Guide's Glossary for a further explanation of these terms.
Another closely watched indicator of slowing business is the Institute for Supply Management's PMI. This index (originally called the Purchasing Manager's Index) indicates the level of manufacturing activity nationwide. When the index drops below 50, the overall manufacturing economy is shrinking.
On the bright side, the delay in identifying a recession means that the worst may already be over. You can use these same measures to look for signs of expanding business, too. For example, the stock market tends to hit bottom several months before the end of a recession, giving you time to get on board for the ride up. When bad news doesn't drive the stock market lower, chances are it has hit bottom.
For a measurable sign that the cycle is on the upswing, look for a 20 percent increase in the 200-day moving average for the S&P. Go to a stock charting Web site, such as Stockcharts.com, and create a chart for an index fund that tracks the S&P 500 index (the Vanguard 500 index fund ticker is VFINX). Include the 200-day moving average as an overlap on the chart.
Watch for the for-lease signs coming down, an increase in the number of columns of job ads in the newspaper and more traffic in the local mall. When you see signs like these, the darkest hour is giving way to the dawn.