Haunted by Alan Greenspan, gloom is descending over Wall Street. Investors are nervous that the central bank will hike rates several more times to slow down an economy that so far shows little sign of faltering. Yet there is an intriguing piece of evidence that suggests the economy is already weakening.

Specifically, corporate bond yields, after adjusting for inflation, are at levels that have never failed to brake the economy in the past. Real corporate bond yields are almost 7% and real junk bond yields are nearly 10%. The junk bond market is especially important to watch. The 600 billion dollar junk bond market is an important source of funds for marginal companies. Yet these companies are very vulnerable to the economic cycle. A clear sign that lenders are anticipating good economic times ahead is when junk bond yields come down and new issue volume soars. On the other hand, when leverage is high and investors expect the economy will weaken, junk bond yields skyrocket, and new issue activity plummets. After all, many junk bond companies struggle to meet their steep debt payments when the economy slows. Right now, investors are shunning the junk bond market.

It's not just junk. Real mortgage interest rates are at 6.5%. The NASDAQ is down almost 40% since its high in early March. Taken altogether, the good news is that the Fed's tightening campaign could end sooner than expected. The bad news is that investors are now anticipating a significant slowdown in the economy.