When is the Next Recession?
Wouldn’t it be great to know when the next recession is coming, how long it will last and how to best position yourself to ride it out?
What are the signs that point to recession? There are many causes and they can change rapidly, especially in 2022. Four of the factors that experts often look at to gauge the health of the economy are: yield curve, unemployment rate, consumer confidence and housing starts.
Yield Curve: Are long term yields below short-term yields on bonds? This means that the price of long-term fixed assets is rising as investors seek stability. Investors are willing to pay a higher price for longer term bonds in order to receive the same yearly income payout. This means that the market is pessimistic about near-term economic prospects.
Unemployment Rate: Rising unemployment can lead to declining consumption and lower business output which can cause even higher unemployment and further declines in consumption and output.
Consumer Confidence: When consumers feel pessimistic, they cut back on spending. This is related to the unemployment rate as well as to stock market fluctuations.
Housing Starts: When the economic outlook is poor, homebuilders will often cut back on housing projects.
While the unemployment rate remains low, the other signs point to recession now and into 2023.
Remember, recessions are a natural part of the economic cycle. Over the last 70 years, the average recession caused a reduction in GDP (Gross Domestic Product) of about 2.5% while the average expansion, e.g., the period after the recession of 2008, increased it by 25%.
What happens to the stock market during a recession? Equities often do poorly during a recession but some of the strongest returns can occur during the late stages of the economic cycle or immediately after a market bottom. This does not mean that you want to time the market or, worse, do nothing.
So, how should you position yourself for the recession?
The first step is to review your asset allocation to make sure your holdings are still balanced and diversified and will allow you to reach your investment goals while remaining within your tolerance for risk.
Now is a good time to meet and discuss your financial objectives. Call Chestnut Investment Advisory at 215-836-4880 or email ellend@regardingyourmoney.com.
No matter if we are in a recession or it is around the corner, we can count on the markets to be unpredictable. With planning, you will be able to ride it out and, perhaps, be in an even better position when things stabilize.
Sources: Capital Group, New York Times