Broker Check

The Anatomy of a Recession

| October 11, 2019
Share |

With so much conversation regarding a global slowdown and the risk of recession, I thought it would be timely to share an update. Attached to this link you will find ‘The Anatomy of a Recession’ from our partners at Clearbridge. This is a lengthy presentation and has a few key points that we believe are worth a closer look. 

Recessions don’t occur overnight; it takes multiple quarters to shape and form one. During recessions, the market either presents as a ‘crash’ as witnessed in 2008-2009 or a ‘pullback’ as experienced in June of 1990. The current outlook suggests more of a pullback on the horizon as there isn’t much in the way of fuel to ignite a crash scenario. We always prepare for downside volatility in case an unknown asset bubble exists that has not been factored in.

A recession is not imminent. With that said, it is always better to discuss the possibility prior to one than during.

We follow 12 Economic Indicators which are sorted into these 4 categories: Financial, Inflation, Consumer and Business Activity. On page 5 of ‘The Anatomy of a Recession’, you can see that Business Activity is beginning to lean toward recession, while Consumer Activity is still very much in expansion. The following page examines recessions of the past 50 years with current economic indicators in the 4th quarter of 2019. We currently are still expanding our economic growth compared to past recession conditions.

There are two case scenarios that accompany this analysis, a Bull Case (slowdown) or Bear Case (recession). One important data point to note is that the rate of consumer debt has only climbed by 1.3% over the last 5 years, unlike 15% ahead of previous recessions.

We don’t want to turn our back on growth but taking a defensive posture makes sense when we are this late into a ten-year recovery stretch. The markets are going to be volatile but that will open a door for opportunities.

Please don’t hesitate to call or email with questions on the presentation. We hope you find it worthwhile.

Cheers! Jay

The opinions voiced in this material are for general information only and are 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.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

The payment of dividends is not guaranteed. Companies may reduce or eliminate the payment of dividends at any given time.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Share |