• The bond market's famous recession gauge has been flashing for 18 months.
  • A downturn could be delayed for months after the yield curve first inverts, Paul Dietrich said.
  • He predicted a recession would hit the economy "sometime soon."

A famously accurate recession indicator has been flashing for 18 months without an economic slowdown materializing — but the inverted yield curve is still correct, and a downturn is looming, B. Riley Wealth's chief investment strategist Paul Dietrich says. 

Dietrich pointed to the inverted Treasury yield curve, a highly accurate recession gauge that flashes when the yield on the 2-year US Treasury surpasses the 10-year Treasury. 

An inversion on the 2-10 Treasury spread has correctly predicted every recession since 1955 — and it's been flashing its infamous warning since November 2022, around the time B. Riley's collection of leading economic indicators also began to signal a coming recession.

The resilience of the US economy has stunned observers, but while some economists have dialed back their warnings of a coming downturn, one is still coming, Dietrich said in a note to clients last week. In the past, recessions have taken up to 28 months to officially start after being signaled by the yield curve and leading economic indicators, he noted.

Stocks also look due for a correction. The US is in the midst of a 15-year secular bull market, the longest in US financial history.

Forecasters have likely been taking their recession calls off the table out of impatience, Dietrich said, though he anticipated recession calls to come back into the picture within the next six months. 

"I think wise investors should be very skeptical of those who tell you we are starting a new bull market and that we will not have a recession. They want you to believe that the natural business cycles of bull markets followed by a recession have been magically suspended and 'this time is different.' It is not different!" Dietrich said. "I don't know the exact date of the next recession, but I know it will come sometime soon."

Dietrich is among the more bearish forecasters on Wall Street, having warned investors of an impending recession for months. Previously, he predicted the economy could see a mild recession as soon this year, which could tank stocks as much as 49%. 

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