12/14/25
S&P 500: 6827
Nasdaq: 23,195
10 Year Treasury: 4.1%
David R. Snyder, CFA
With the extraordinary equity returns last decade especially in tech stocks, investors no longer care about risk-adjusted returns (it was a major focus for investors in earlier decades). Yet some of the best performing hedge funds and managed funds last decade had much lower alpha when adjusted for risk as tech stocks have very high volatility and high betas. And in 2022 many of these high profile funds suffered losses as high as 66%. With much lower returns expected over the next 10 years, risk-adjusted returns will likely come back in vogue. The standard Sharpe Ratio measures excess return per unit of risk but assumes a normal distribution of returns. My research reveals that investors are more worried about downside risk than just volatility and especially losses of 10% or more in any year. That is why the Sortino Ratio should also be used in conjunction with the Sharpe Ratio, as it is a better measure of return per unit of downside risk. There is also a Probabilistic Sharpe Ratio which gives more weight to negative skewness and measures excess kurtosis.
The economy escaped the 2022 hiking cycle and inverted yield curve without a recession. I have accurately called recessions in the past but this cycle was different. In 2022 when the consensus was that we were entering a recession, I was convinced that there wouldn’t be any recession until at least the second half of 2023, as the yield curve had not yet inverted. However, I did forecast a recession starting in the second half of 2023 with the fourth quarter being the most likely start of the recession. In October of 2023 I realized that we were not entering a recession and became bullish on the stock market. I went to a three to six month recession watch from a recession call but the watch never triggered a recession call. The chances for a recession dwindled after late 2023 according to my research, although it increased during the summer of 2024, but only for a brief period.
I follow 16 different indicators that have each on their own never incorrectly forecast a recession in the past but incorrectly predicted a recession in 2023-24 period, ranging from the inverted yield curve to the leading economic indicators. So why did we not have a recession? First net immigration averaged between two and three million annual rate between 2022 and the first half of 2024 vs. less than one million per year in the prior decade. These immigrants provided a big supply of labor in sectors of the economy that were experiencing labor shortages such as hospitality, farming, construction, landscaping and manufacturing. They prevented the inflation rate from going higher (prevented further wage hikes) and thus the Fed from hiking rates even more. They also provided incremental demand to the economy as it began to slow from higher interest rates. A higher percentage of immigrants are working age than the US population and they have high labor force participation rates.
Second, the massive fiscal and monetary stimuli in 2020-21 resulted in unprecedented demand for labor. Even when the economy began to slow as a result of higher interest rates, there were such an excess of unfilled jobs that even the decline of those unfilled job openings did not result in many layoffs. Non-farm job openings spiked to 12.1 million in March of 2022, more than doubling the peak of 4.7 million before the financial crisis. Job openings then fell 42% to 7.1 million in September of 2024, which was only the figure before the pre-Covid peak in 2019. In the past there has never been a drop of 42% in job openings without a recession. The 42% decline from 2022-24 was actually more than the 36% drop during the Covid recession in 2020, and almost as high as the 44% depletion in the 2001 recession.
The number of unemployed per job openings also reached historical lows in May of 2022. This ratio doubled from 0.5 to 1 from May of 2022 to September of 2024, and is now only at levels pre-Covid. Only because we started the higher interest rate cycle at excess job openings per unemployed did we not have a recession. The quits rate was also extended in early 2022. It fell from 4.5 million in March of 2022 to 3 million in November of 2024 with only a slight uptick in the unemployment rate. Again, starting at artificially high level allowed the quits rate to deteriorate by 33% without causing a recession. New hires were only moderately extended at its peak of 4.6 million in November of 2021. They then declined 30% to 3.2 million in August of 2025, the same percentage decline as in the Great Recession! This figure is only moderately above the June 2009 low, and is still at recession levels.
Continuing claims were also at historical unprecedented low levels of 1.25 million in June of 2022. That number has increased 32% to 1.78 million without a recession. In the past a rise of 32% in continuing claims has always been accompanied by a recession. But again, we started the higher interest rate cycle at such extreme lows of continuing claims (especially when adjusting for the size of the labor force) that a big percentage increase off of a very low base is not that meaningful.
In conclusion big increases in immigration combined with excess demand for labor at the start of the Fed interest rate hiking cycle prevented a recession. Although new hires fell to recessionary levels, layoffs only increased minimally off of a low base. The massive immigration effects on the economy were difficult to forecast as official government figures in real time in 2022 and 2023 dramatically underestimated immigration by millions. As an analyst very difficult to forecast the economy without accurate figures.
Full Disclosure: I own several of the securities mentioned positively. None have been purchased within the last month. The opinions merely represent the opinion of the author as CIO of Journey 1 Advisors, LLC and intended to inform the readers about our investment philosophy and strategy. The contents of this report are based on sources believed to be reliable. It is not intended for circulation. It is not intended to offer investment advice, or to recommend the purchase or sale of any securities or investment product. Investment advice is only given after a client has signed an investment advisory agreement with Journey 1 Advisors, LLC and will be subject to the terms and conditions therein. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock’s expected performance and risk.