Investing During A Recession

A survey conducted by the Conference Board at the end of last year showed that 98% of chief executive officers (CEOs) expect a recession to hit the U.S. within the next 12 to 18 months.

As 2022 ended, concern over a possible recession appeared to replace investor anxiety over inflation. No one knows how long a recession could last or how it might impact the markets. And while CEOs are preparing their companies for a possible recession, we believe that patience and adherence to your portfolio strategy may be the best approach.

Investing in the Stock Market

Remember, the stock market is considered a discounting mechanism, meaning that today's prices reflect all available information about current and potential future events. Stock prices attempt to anticipate economic conditions six months out or more. It's possible investors and financial markets will “look through” a recession, and focus on an expectedly improved economy before any lagging economic indicators confirm the trend.

In fact, stock prices have historically bottomed out nearly four months before the official end of a recession is determined. But remember, past performance does not guarantee future results.

What Happens During a Recession

Should we experience a recession (the “hard landing” scenario), a prescription of patience remains investors' best remedy.  Those who have kept their money invested in stocks over long time periods have experienced multiple recessions.  However, the reward for bearing this risk has been exceptional: over the last five years the US has experienced one recession, while the S&P 500 has returned 9% per year. The last 20 years have seen annual returns of 9.7% across two recessions; if you’ve owned the S&P 500 for the last half-century, your reward for seven recessions has been over 10% returns per year!

We hope the Federal Reserve's policy helps avoid a recession by orchestrating something of a "soft landing" for the economy. Soft landings have occurred before in 2018, 1994 and 1985; they are certainly possible. But as we’ve said before, hope is not a strategy. Your financial approach will reflect your goals, time horizon and risk tolerance.

We help clients handle whatever the markets throw at us, as we help you pursue your goals. Recession or not, we work with other financial professionals who are listening to comments from Fed officials and comparing them to what the financial markets are saying.

Many of our current clients started by asking us to analyze and review their current investments. If you'd be interested in getting a second opinion, please call or email us, and we can set up a time to connect.

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