Last fall we published ‘The Anatomy of a Recession’ from our research partners at Clearbridge Investments. As I mentioned then, recessions don’t occur overnight, but as we have recently discovered they definitely can accelerate when the global economy comes to an immediate closure due to an unforeseen pandemic. It is clear the U.S. has now entered a recession, even if it has not officially been called that yet. Almost every economic indicator is now flashing red, as signaled by the attached and updated recession risk dashboard. This is not a shocking announcement since Covid19 has brought overall business activities to a halt. As we turn the page to reopening the economy over the coming months, the focus will shift to sustainability and speed of recovery.
The strength of the recent rally has led some investors to question whether they are in sync with reported economic data as they consider the prospects for a tricky economic recovery. The jobs report, retail sales and profit margins have been hit extremely hard. But then on Friday, after it was announced over 21 million jobs have been lost, the markets rallied to end a strong week of performance. How can the markets have been able to advance with what looks like Great Depression economic numbers pouring in? The simple answer is that the awful financial numbers have already been factored in and the belief that 75% of the laid off or furloughed workforce will be rehired before the end of the year is holding strong. We will begin to receive more news on the reality of rehiring in the coming months, either contradicting or confirming the optimistic path the markets carved out over the last month.
I continue to reflect on comments from a trusted research analyst last week. They made it clear we are pricing in perfection to the market bounce back. “It will probably get better from here, but a lot of the ‘better’ has been priced in!”. While the equity markets have factored in a swift V-shaped recovery moving forward, most likely the results will be less perfect. We believe continued short-term volatility will include opportunities to add great companies at a reasonable price. As the slow and awkward re-opening of business begins, there will be frustrations over start-stop activity that may spill back into market performance.
The Anatomy of a Recession follows the 12 economic indicators that drive the US economy, including: Financial, Inflation, Consumer and Business Activity. We hope you find the update informative and as always, please don’t hesitate to call or email with questions.
Wishing you and your family health and happiness!
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 economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.