A recession is coming.
How do I know this?
Because that’s what happens sometimes:
We’ve had one every 5 years on average going back 170+ years.
Here’s the big question I don’t know the answer to: When?
I don’t know when the next recession will be here.
Maybe it comes from the trade war. A lot of people seem to think that’s a possibility.
Is this a copout? I guess so — but I’ve learned the recession prediction game is much harder than people think.
There were a lot of people who thought a recession was a sure thing a few years ago and it didn’t happen:
In the past 15 years we’ve had exactly one recession that lasted just two months in the spring of 2020. That contraction was man-made and over in a hurry.
Whenever we do have an economic contraction, it’s going to be interesting to see how businesses and consumers react. Everyone is a little out of practice.
If consumer and business sentiment have a say, things aren’t looking so hot.
CEOs are worried:
Investors are worried:
Consumers are worried:
Employees are worried:
It is important to recognize this is sentiment not actions.
CEOs say they are losing confidence.
Investors say they intend to cut their U.S. equity exposure.
Consumers say they are worried about government policies, losing their job and business conditions worsening.
If actions match these sentiments readings then we are absolutely going into a recession.
I’m not so sure we can trust sentiment readings anymore, since they change so rapidly. You have to watch what people do not what they say.
My base case right now is probably a recession, but that’s just a guess.
If we do have a recession the silver lining is that consumers as a whole are still in good shape:
Profit margins for corporations remain near all-time highs:
There is a margin of safety in place.
My baseline would be a mild recession if and when it happens assuming we don’t get some kind of financial crisis.
Of course, a recession would still mean job loss, business closures, lower stock prices, etc. Even a mild recession wouldn’t be very much fun.
Preparation for a recession is the same regardless of where we are in the business cycle.
You carry a low debt load, have an emergency fund in place, keep a high savings rate, and give your finances some wiggle room and a backstop.
But you should do those things even if we don’t go into a recession in the coming months.
In conclusion:
A recession is coming at some point.
I don’t know when.
Life would be a lot easier if these events occurred on a set schedule so businesses and consumers could plan ahead.
Things will never be that easy.
The goal is to build a financial life that is durable enough to handle a slowdown, whenever it may occur.
Further Reading:
What Happens in a Recession?
Like the charts in this post? Check out Exhibit A to see how you can use them in your wealth management practice.
This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.
References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.
The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers
Please see disclosures here.
