What are the consequences for investors with a recession?
🎧💡 #16 Macro & Business Insights
Hi all, and welcome back to The Macro & Business Insights!
What you’ll find in this episode:
What investors can expect with a recession?
When can we see trend change in the stock market?
Why is not easy the Central Banks’ job?
When a new bull market arrive?
After so many years of tech dominance, UBS Asset Management ask if investors will finally find an appreciation for other types of equities?
Will equities have to look a little like bonds to be attractive? Could dividend yields be back?
Time will tell, but what is certain is that these types of rotations in the equity markets can create wonderful alpha opportunities, particularly where the institutional mix of shareholders is low.
The arrival of a recession would have consequences for investors. U.S. recessions have typically been associated with global equity bear markets.
So, RBC wealth management team believe any equity market rally over the next few weeks or months will, at some point, give way to another period of falling share prices reflecting declining expectations for earnings and the eroding confidence in the future that typically comes with a period of economic retrenchment.
Yet investors should keep in mind that the stock market has always turned higher well before the recession ends, usually three to five months before. Moreover, recessions typically are short-lived and already successful companies should have the ability to adapt to new circumstances.
Looking at the chart above, the 13 U.S. recessions since 1945 are barely visible on the nominal GDP line, while operating earnings per share always have ultimately recovered.
When can we see a new bull market?
Bull markets are typically born when investors ignore good news, but the fear of missing out (FOMO) seems alive and well.
This suggests there is more pain to go before markets are investible again. It feels like more stuff needs to break.
Warren Buffett colorfully mused that it is only as the tide goes out that you find out who has been swimming naked. Today’s tide is the rapid rise in interest rates to combat inflation.
Where will the weaknesses in the markets be exposed?
The Fed vs. the US labor market
To best understand US economic dynamics, it is necessary to break down the US labor market into lower and higher income cohorts.
Lower wage employees, who are disproportionately employed in the service sector, are experiencing very strong wage growth.
This is happening in large part because higher income workers still have a lot of excess savings, which they are ready and more than willing to spend in the service sector.
If you had like this piece and you want to read all the article I invite you to go on my website www.scriptamanent.blog, which you can find many more useful insights.
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Disclosure
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.