A recent poll of economists by The Wall Street Journal put the chances of a recession in 2023 at 61%. Even former Federal Reserve Chairman Alan Greenspan, 96, weighed in, saying a recession was the “most likely outcome” given the current economic trajectory.
Recession risks rose as the Federal Reserve looked to combat rampant inflation that had been crippling consumers’ finances throughout 2022. The central bank’s solution was to embark on a series of interest rate increases in hopes of calming inflation by slowing the economy.
While inflation has begun to slow, and the Fed has indicated it tends to moderate interest rate increases, many economists believe that the Fed’s aggressive tightening has caused a broader slowdown in the economy, as rising mortgage rates have hurt the housing sector and manufacturing activity has shown signs of slowing. stress.
To clarify what recession means, CNBC prepared this report, which was reviewed by Al Arabiya.net, seeking the opinions of investment experts.
Economists weren’t the only ones suffering from the idea of a recession. Investors have been worried about the state of the economy for months, pushing the S&P 500 down 18% in 2022 (and 25% from its highs over the past year).
In general, investors and economists alike expect a “moderate recession,” predicted CFRA’s chief investment analyst, Sam Stovall.
In the opinion of investment strategy analyst at Baird Private Wealth Management, Ross Mayfield, a relatively mild and short-term recession can be demonstrated by examining current economic data, including strong consumer spending and a strong labor market.
“These are some of the things the Fed is looking at that we haven’t seen before going into recession,” he said.-
Mayfield added that if a recession does occur, it is important not to expect a sharp drop or rally in stock prices anytime soon. Instead, look for stocks that will benefit again when the Fed reverses course on interest rates, a move that could come after a recession has already hit.--
“The moment the Fed says it’s going to reverse policy, that’s something the market is likely to take and deal with,” Mayfield said.
SoFi’s head of investment strategy, Liz Young, doesn’t think the recession has factored into share prices. She explained that given that the average stock market decline during a recession is 44%, the market would have to drop at least 30% from recent highs to show that investors are taking the recession seriously.
She sees the main factor that could signal a deeper recession: a significant drop in corporate profits, which Young says will be the signal for the stock market to rush into overdrafts. But on the bright side, investors have already experienced some pain, which means that the recession will not be a huge shock to the portfolio.
To reach the minus 30% mark, the S&P 500 index must reach the level of 3,357 points. This figure would represent a further 16% decrease from current levels.
Young said that shouldn’t stop you from investing now. On the contrary, it would be wiser to invest money in a diversified portfolio and keep investing even if the market is experiencing some turmoil.
In doing so, you are actually buying more shares on the cheap, which will benefit you if the stock market continues on its historic long-term bullish trajectory.
“It’s okay to take a short-term pullback of 10% so you can get 40% on the other side,” Young added. In response to the question that arises in the minds of some, Young said, “No one can accurately determine the bottom, and if you are closer to the bottom than the top, do not worry about buying.”