When will the bags be retrieved?
Everyone wants to know when the next recession is going to start and how long it is going to last. It’s true that all recessions are difficult in their own way, but the good news is that they don’t usually last long. According to a Capital Group analysis, in the eleven business cycles that have occurred in the United States since 1950, recessions have lasted between two and 18 months , with an average of ten months.
Also, equity markets usually start to recover before the recession ends. In the current cycle, they have already anticipated the downturn in the economy; by mid-2022, almost all major equity markets had entered bearish territory. And if we go by historical data, they will start to recover about six months before the economy does. The possibility of accessing the recovery of the markets from the beginning can be very advantageous.Since 1950, bull markets have averaged 265% returns and bad markets 33% losses.
The biggest gains can occur immediately after the market reaches its lowest level . In addition, the option of waiting for a change in trend in the economy is not a recommended strategy. “It’s been a tough year, and it’s likely to continue to be,” says Darrell Spence, an economist at Capital Group. “But there is one thing we must not forget: One of the things that bear markets have had in common is that they have all come to an end. In the end, the economy and the markets have ended up recovering, “he adds.
The focus is on valuation.
After the COVID-19 pandemic, the “status quo” of the last 30 years has been upended. After decades of peace and falling inflation, inflation and geopolitical tensions are rising. “As investors, we see it getting back to something close to normal,” Spence says.
Some of the best opportunities in equities have come in the midst of a recession.
“I am by no means saying that the current environment is easy, but for the first time in a long time, we are seeing positive nominal interest rates on cash positions,” says Johanna Kyrklund, CIO and co-chief investment officer at Schroders. “This marks a significant change in investment dynamics compared to the past two years, when we were forced to buy more expensive assets than ever before to achieve returns in a world where liquidity was limitless,” she adds.
Recovery at different speeds
We may still face a recession in 2023, but we remember that economies recovered at varying rates after the 2001 recession. “That made that crisis interesting from an investment standpoint, and I think we will have fantastic opportunities over the next two years,” Spence says.
Emerging markets handled inflation faster last year, so they have little room to escape the tightening cycle. We find value in assets in these markets after the projected rate hikes hurt them.
Schroders feels stocks are less appealing than bonds and need profit expectations to cool down owing to recession risk.What may cause an equity rally?”Any evidence of weakening in the US job market would allow the Fed to reverse the path of rate hikes, and that would make it possible for fixed income to adjust downward and the variable to recover ground,” Kyrklund says.
Equities offer additional chances.”After years in which the United States always outperformed the rest, driven by the strength of the technology sector, now the rest of the markets seem very cheap,” says the expert from the British management.”But, as we have said on other occasions, investors will have to be more selective in this new environment, both in terms of countries and companies,” she says.Winners and losers will increase in fixed income and stock markets.
Recessions have historically offered the strongest equity opportunities. Markets always lead economic news. “That is why in 2023 investors should focus on valuations and not so much on the headlines,” Kyrklund says.
The 1929 crash was one of the most significant economic occurrences. It is still studied today.Many families lost their businesses and life savings in this stock market crash.1929 saw the Great Depression.Millions lost their jobs, companies went bankrupt, and some committed suicide.