Despite the ongoing bull run in the stock market over the past year, there are increasing concerns that the party on Wall Street may be drawing to a close. A predictive indicator, with an impressive track record dating back to 1959, is now raising alarm bells about the future of the U.S. economy and the stock market.

The Federal Reserve Bank of New York's recession probability indicator, which measures the likelihood of a U.S. recession over the next 12 months, has caught the attention of investors. This measure analyzes the yield spread between the 10-year Treasury bond and the three-month Treasury bill. Historically, an inverted yield curve, where short-term bonds yield higher than long-term bonds, has preceded every U.S. recession since World War II.

Based on the latest data from the NY Fed's recession-forecasting model, there is a 56.29% chance of a U.S. recession taking shape by July 2025. Remarkably, since 1959, a recession probability of 32% or greater has consistently signaled an upcoming economic downturn.

While the connection between the stock market and the economy is not always direct, the overall health of the economy does impact corporate America. A weakening economy and rising unemployment can adversely affect corporate earnings. Bank of America Global Research has found that around two-thirds of the S&P 500's peak-to-trough drawdowns occur after a recession has been officially declared.

Considering this key recession indicator, there is a growing belief that stock prices could experience a significant decline, potentially entering a bear market in the near future. While investors may not welcome recessions or market corrections, these periods of instability also present opportunities for long-term-minded investors to snag discounted prices on solid businesses.

History provides valuable perspective on economic cycles and stock market fluctuations. Based on data from the Bespoke Investment Group, the average length of S&P 500 bear markets has been approximately 9.5 months, while bull markets tend to last around two years and nine months. It is crucial for investors to exercise patience and maintain a long-term perspective to navigate through short-term market turbulence.

While it is impossible to accurately predict the timing and extent of market corrections or bear markets, history has shown that patience and perspective can be powerful tools for investors. Despite the occasional downturns, the U.S. economy has consistently expanded over time, delivering long-term growth opportunities.

As Wall Street ponders the possibility of an impending recession, it is crucial for investors to stay informed, maintain a diversified portfolio, and seek opportunities amidst the market's fluctuations. Time-tested businesses and a long-term investment approach can help weather the storm and potentially capitalize on future market rebounds.