That's a difficult question to answer right now, and the answer probably lies somewhere between yes and no.
Cracks are also starting to show in places like the banking system, with institutions like Silicon Valley Bank and Signature Bank of New York having taken a beating from the Federal Reserve's interest rate hikes and losing depositors' confidence in the process. This has impacted credit availability for small businesses and even individuals.
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And yet the jobs market seems to be hanging in. The unemployment rate, at 3.6%, still sits the 53-year lows seen in January.
Consumer spending is also still positive year-over-year, but had been slowing down before January.
But that's just the snapshot right now. If you look instead at a number of leading indicators, you're likely to get the idea that things are going to get much worse.
Federal Reserve Chairman Jerome Powell openly acknowledges this. At the Fed's March meeting, he said the central bank expects unemployment to rise to 4.5% by the end of 2023, meaning well over one million Americans would lose their jobs.
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"We remain committed to bringing inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored. Reducing inflation is likely to require a period of below-trend growth and some softening in labor market conditions," Powell said. "Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run."
Just how bad things get remains to be seen. But the story that various signals are telling isn't pretty.
5 charts that show the economy heading for pain
The above chart shows the so-called yield curve, or the the gap between yields on the 3-month Treasury bill and the 10-year Treasury note.
Typically, yields on 10-year notes are higher than those with shorter durations, as investors seek greater compensation over longer durations. But the yields are currently inverted at a deeper level than they have been in at least 40 years. Right now, a 3-month bill yields 4.8%, while a 10-year note yields 3.5%.
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Yield inversions of these two durations are recognized as an extremely reliable recession indicator, as they've preceded every recession since the 1960s. Recessions are highlighted in gray in the chart above.
Inversions signal a recession for multiple reasons. For one, the 3-month yield follows closely with the fed funds rate. If the fed funds rate climbs so high that it drives the 3-month yield above the 10-year yield, it means financial conditions are tight and will likely put the brakes on the economy. On the other end of things, investors often pile into 10-year notes as a safehaven asset when they sense that an economic downturn that will hurt stocks is on the way. Heightened demand for the assets pushes up their price and pushes down their yield.
Second, the Fed's own recession indicator, which is based on the yield curve in the first chart, has climbed to its highest level in four decades.
The central bank now says there's a 54% chance of a recession in the next 12 months. That may sound like decent odds, but notice that a 54% chance is well above the odds the Fed gave in 2008 and 2001.
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Staying in the bond market, the above chart shows theIntercontinental Exchange Bank of America MOVE Index, which measures volatility in the bond market.
It's currently spiking to levels previously seen only during the Global Financial Crisis around 2008.
According toJim Bianco, the founder of market research firm Bianco Research, the volatility reflects uncertainty among bond investors about what the Fed will do at their June meeting.
"The market, for the June meeting, is pricing a cut, a hold, and a hike," Bianco told Insider. "Boy, they really don't know what's going to happen in June."
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This uncertainty is a result of banks' growing reluctance to lend out money amid the liquidity scarcity that caused two banks to close earlier this month. A large enough pullback in lending will send the economy into a downward spiral, he said.
"If you get a credit crunch, you could have an immediate downturn in the economy, a very quick downturn," he said.
The above chart shows a growing reluctance from banks to lend — it's the percentage of banks that are tightening lending standards for businesses.
Right now, almost 45% of banks are tightening lending standards. That's not yet as high as at the recessionary peaks in 2020 (71%), 2008 (83%), or 2001 (59%), but the number appears to be continually growing.
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Relatedly, tightening lending standards typically mean larger credit spreads. Credit spreads are the gap between high-risk bond yields and yields on risk-free bonds.
If the spreads are larger, it means investors are demanding more compensation for higher levels of risk. Higher levels of risk mean the companies have a higher chance of going bankrupt and closing, meaning their employees will be out of a job.
The chart above shows that spreads are still low. But historically, when lending standards tighten — making it harder for companies to get a loan from banks in order to stay afloat — credit spreads follow.
Implications for stocks
A recessionary outcome likely means more pain for stocks. Just how much pain, however, is where opinions diverge, partially because it depends on the depth and duration of a downturn.
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if a recession comes. That's 14% downside from the index's current level around 4,090.
Meanwhile, Bob Doll, the current CIO and former chief US equity strategist at BlackRock, recently told Insider that a mild recession would knock the S&P 500 down to 3,400, while a deep recession rivaling 2008 would sink the index to 3,000.
That's roughly consistent with what Morgan Stanley's and Bank of America's top US equity strategists, Mike Wilson and Savita Subramanian, have said in recent weeks. Both see a floor for the index around the 3,000 level, which would translate to more than 26% downside.
And then there are those with even starker calls. Two bubble gurus who called both the 2000 and 2008 crashes — John Hussman and Jeremy Grantham — see significant downside. Hussman and Grantham believe declines of more than 50% are possible.
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"This one is pretty damn big," Grantham said in a recent interview with David Rosenberg. "It's bigger than 2000, because it includes real estate and bonds, and that one did not. The economy had a gentle recession. It had no problem with real estate. It had no problem with markdown of debt. And yet, the Nasdaq went down 82%, Amazon went down 92%, and the S&P went down 50%."
He added: "Be advised, this is not a gentle setback like 2000."