A recession indicator is blaring louder than it did before the 2008 downturn - but 'no one seems to care'

• A New York Fed economic model shows the odds of a recession in the next 12 months are at 57%.
• That's worse than it was before 2008 and the highest it's been since the early 1980s, according to DataTrek Research.
• "This indicator's track record is perfect once it goes over 50%."

A recession indicator is flashing its worst warning in roughly four decades, according to DataTrek Research. 

In a Tuesday note, Nicholas Colas, cofounder of DataTrek Research, highlighted the New York Fed's Recession Probabilities model, which is based on the spread between the three-month and 10-year Treasury yields. 

Currently, the model shows the odds of a recession in the next 12 months are at 57%. That's the highest it's been since the late 1970s and early 1980s, Colas wrote, and higher than the run-up to the 2008 financial crisis.

"No one seems to care, probably because Fed-induced recessions should have Fed-induced recoveries," he said, adding that the model has a perfect record when the odds climb above 50%.

Colas later noted, "This idea does have some intuitive appeal, even if it ignores the difficult issues of how deep any recession might be or how long it might last."

Markets have rallied to start the new year. The S&P 500 is up 7.5% year-to-date, and the Nasdaq 100 has climbed over 14% in the same stretch.

Investors seem to be pinning their on hopes of easing central bank policy in the near future, even though Fed Chairman Jerome Powell has maintained a hawkish stance, and cautioned about higher-for-longer rates multiple times.

Meanwhile, JPMorgan strategist Marko Kolanovic echoed the notion that markets have over-priced good news and have become complacent about risks.

The realistic chance of a downturn hasn't been fully priced in, in his view, and investors should fade 2023's early stock rally.