What Happens When the Convex Recession Probability Index Spikes?
What happens when the Convex Recession Probability Index signals elevated recession risk? Composite of leading indicators, yield curve, credit spreads, and labor data.
Trigger: CVRP, Convex Recession Probability rises above 50%
Current Status
Right now, CVRP, Convex Recession Probability is at 9.00, up +50.0% over 30 days and -74.3% over 90 days.
Low recession probability (9/100), expansion dynamics intact
Last updated:
The Mechanics
The Convex Recession Probability Index aggregates multiple leading indicators (yield curve, jobless claims, credit spreads, leading economic index, ISM Manufacturing) into a single probabilistic signal. When the index rises above 50%, it indicates that a majority of its component signals are flashing recession warnings simultaneously. This composite approach reduces false positives from any single indicator while preserving signal strength when multiple metrics align.
Single-indicator recession signals like yield curve inversion or Sahm Rule triggers have historically been noisy with long lead times. The composite index smooths this noise by requiring broad confirmation across labor, credit, and growth channels. A reading above 50% has historically preceded NBER-defined recessions by 3 to 9 months with meaningful accuracy.
Because the index blends fast-moving (credit spreads, claims) and slow-moving (unemployment, LEI) indicators, it tends to rise gradually before accelerating sharply near recession onset. The inflection point matters more than the absolute level: a reading moving from 30% to 55% over three months carries more signal than a static reading of 60%.
Historical Context
The index has retroactively crossed 50% before the 2001, 2008, and 2020 recessions, with median lead times of 5 to 7 months. The 2022-2024 readings were elevated for an extended period without producing a conventional recession, reflecting the unusual post-COVID cycle where labor market strength offset signals from rates and credit. The 2008 episode saw the fastest ascent, with the index rising from 35% to 85% over six months as credit markets seized. Historically, readings above 70% have been consistent with imminent or already-underway recessions.
Market Impact
Stocks typically peak within 3-6 months of the index crossing 50%. Peak-to-trough drawdowns average 25% across cycles.
Long duration rallies as markets price in future rate cuts. TLT often gains 15-25% in the 12 months following the signal.
HY spreads widen materially once the index crosses 60%. Spreads often double within 6-12 months.
The dollar initially strengthens on safe-haven flows, then weakens as the Fed begins easing.
Gold rallies as real yields fall and policy easing approaches. Average gains of 10-20% from signal to recession trough.
Defensive sectors (staples, utilities, healthcare) sharply outperform cyclicals (industrials, materials, discretionary).
What to Watch For
- -Index rising above 60% with broad component confirmation
- -Yield curve re-steepening after prolonged inversion
- -Continuing claims rising above 1.8M
- -HY spreads widening past 450 basis points
- -ISM Manufacturing below 45 for two consecutive months
How to Interpret Current Conditions
Track the trajectory of the Convex Recession Probability Index alongside its component series. An upward inflection across multiple components (rising claims, widening credit, falling LEI) produces the highest-confidence signal.
Per-Asset Deep Dives
Dedicated analysis of how this scenario affects each asset class individually.
Stocks typically peak within 3-6 months of the index crossing 50%. Peak-to-trough drawdowns average 25% across cycles.
Long duration rallies as markets price in future rate cuts. TLT often gains 15-25% in the 12 months following the signal.
HY spreads widen materially once the index crosses 60%. Spreads often double within 6-12 months.
The dollar initially strengthens on safe-haven flows, then weakens as the Fed begins easing.
Gold rallies as real yields fall and policy easing approaches. Average gains of 10-20% from signal to recession trough.
Defensive sectors (staples, utilities, healthcare) sharply outperform cyclicals (industrials, materials, discretionary).
Recent Analysis on the Convex Recession Probability Index Spikes
Frequently Asked Questions
What triggers the "the Convex Recession Probability Index Spikes" scenario?▾
The scenario activates when rises above 50%. The trigger metric and its current reading are shown on this page, so the live state of the scenario is always visible rather than abstract. Convex tracks this trigger continuously and flags crossings within hours.
Which assets are most affected when this scenario unfolds?▾
The Market Impact section lists the full asset-by-asset response, but the primary affected assets include: US Equities (S&P 500), Treasury Bonds (TLT), High Yield Credit, US Dollar. Each asset has historically shown a characteristic pattern of response that is described in detail on the per-asset deep-dive pages linked below.
How often has this scenario played out historically?▾
The index has retroactively crossed 50% before the 2001, 2008, and 2020 recessions, with median lead times of 5 to 7 months. The 2022-2024 readings were elevated for an extended period without producing a conventional recession, reflecting the unusual post-COVID cycle where labor market strength offset signals from rates and credit. The 2008 episode saw the fastest ascent, with the index rising from 35% to 85% over six months as credit markets seized. Historically, readings above 70% have been consistent with imminent or already-underway recessions.
What should I watch for next?▾
The most important signals to track while this scenario is active: Index rising above 60% with broad component confirmation; Yield curve re-steepening after prolonged inversion. The full list is on this page under "What to Watch For." These signals are the ones that historically preceded the scenario either resolving or accelerating.
How should I interpret the current state of this scenario?▾
Track the trajectory of the Convex Recession Probability Index alongside its component series. An upward inflection across multiple components (rising claims, widening credit, falling LEI) produces the highest-confidence signal.
Is this a prediction or a conditional analysis?▾
This is conditional analysis, not a prediction that the scenario will happen. Convex describes what typically follows once the trigger fires and shows how close or far the current data is from that trigger. The page is informational; it does not constitute financial advice.
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This content is educational and for informational purposes only. It does not constitute financial advice. Historical patterns do not guarantee future results. Data sourced from FRED, market feeds, and public economic releases.