“It may be.”

That was President Donald Trump on Monday, responding to a question on whether the U.S. economy could be sliding into a recession. I don’t know about you, but I found this to be an extraordinary admission from the president, who until very recently has maintained an “all will be fine” attitude with regard to the spread of COVID-19 and its impact on the economy.

We may very well be headed for a recession—some economists believe it’s already here—but we’re most definitely in a bear market, normally defined as occurring when stocks are off more than 20 percent from their peak.

Not only that, but this selloff has been several times steeper than the past two bear markets. Whereas it took stocks approximately 240 trading days to fall more than 20 percent during the tech bubble, and about 190 days during the financial crisis, U.S. equities lost more than 20 percent in under 20 trading days as a result of fears over the coronavirus. As of Tuesday’s close, the S&P 500 was down 25 percent from its high on February 19.

Market selloff has been steeper than past two bear markets
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As it happened, the Treasury market was warning us (again) all along. Most downturns of the past have been preceded by a yield curve inversion, which happens when the longer-term yield falls below the shorter-term yield, and this time was no exception. The chart below shows the 10-year Treasury yield minus the three-month Treasury yield. In each case, a recession hit in the months after the yield curve first inverted and began to recover.

Treasury market was warning us all along...
click to enlarge