How Likely is a Recession?
Officially, the most predicted recession ever. This is a survey of Professional Forecasters on the probability of a recession in the next 12 months, sitting at record levels of over 40%.
These forecasters could be right, there are many reasons why the current economic situation would result in a recession and if everyone believes we'll go into one, they'll start preparing for one. They'll start prepping (if they haven't already) by slowing spending, business investment, hiring, starting layoffs, etc. This preparation in turn helps induce a recession.
The problem is, predicting economic environments (especially recessions) has proven to be extremely difficult - and here is why I’m cautious of ever jumping on the “recession prediction bandwagon” or making rash decisions based on it.
I read plenty of 2022 Economic Outlooks and Forecasts in December of 2021. None of them predicted record inflation, stocks down 27%, or bonds having the largest drawdown in history, yet here we are.
Look at 2005 leading up to the 2008 recession, these forecasters only got to a 20% probability of a recession right before the largest one in 75 years.
When was the last time something that everyone “knew” was coming actually came? Here is a fresh example below. When inflation started back in late 2020/early 2021, not a single forecast, had inflation going higher than 4%, yet we ended up at 9%.
My recommendations:
Remember we just went through a 27% S&P 500 drawdown which is very close to the average recession drawdown. Not that we can't go down again or that we can't go down further, but I see many people acting/talking like the market hasn’t been moving based on the current economic situation. It certainly has and with the probability at record levels, there’s a decent chance that the market correction of this potential recession has already occurred.
If you need to draw money in the next 12-36 months, you need to make sure you have a good income plan in place and that your investments to which those dollars are allocated too represent the risk at play.
As always, keep your time horizon in mind and when all else fails, zoom out a little, most recessions over the long term seem like little bumps in this long, winding road.
Stick to your plan and call if we can offer any guidance!
Shean
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.