Are We Headed for a Recession?
July 1, 2022
One of the benefits of being bald is that hair lines become a non-issue. Don’t need to worry about receding there. I practice pretty good oral hygiene (although I’m told I should be flossing more) but receding gums doesn’t seem to be a concern right now either. You can usually see a recession on its way with your gums and your hairline. But with the economy, recessions are proclaimed with delay, not in real-time. But even so, are we headed for a recession? Can we even answer that? And if we are headed for recession-what do we do? Hope you enjoy the article below.
-Neel
Just two years removed from the last US recession, negative stock returns, and aggressive US Federal Reserve interest rate hikes have many investors concerned we are headed for another big “R”—if we’re not already there. But recessions are always identified with a lag. By the time one is called, the worst of its impact on markets has usually passed.
The National Bureau of Economic Research (NBER) identifies phases of the business cycle using a bevy of indicators, such as consumption and income data, employment rates, and gross domestic product growth. None of these measures has been consistently dominant in the determination of economic conditions, and certainly, past US recessions have come in all shapes and sizes. Recessions are therefore named retroactively, with the benefit of hindsight (and additional economic data that may be available with a lag).
Because recessions are proclaimed with a delay, rather than in real-time, markets are often on the way toward recovery by the time of the announcement. As shown in Exhibit 1, the stock market had already bottomed out prior to the announcement month in two-thirds of recessions since 1980.1 In 2020’s recession, for example, the market’s low point came in March, three months before the announcement in June 2020. The takeaway for investors? If and when a recession is declared, we think the most sensible approach is to remain disciplined with one’s asset allocation; reducing exposure to stocks at that point may lead to missing out on brighter days ahead.
By: Wes Crill, PhD
Head of Investment Strategists and Vice President
Sources: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.
Investment products: • Not FDIC Insured • Not Bank Guaranteed • May Lose Value Dimensional Fund Advisors does not have any bank affiliates.
