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Should We Fear A Recession?

Should We Fear A Recession?

April 25, 2023

Economic growth is continuing to slow while inflation remains stubbornly high.  This cocktail of economic morass is beginning to take its toll on the financial industry as we see banks feeling the brunt of rapidly rising rates.  This economic maelstrom will inevitably find its way to the real economy as banks begin to tighten their purse strings, but what does that look like?  Are we headed towards a soft landing or a significant downturn?  Moreover, are we headed towards that dreaded "R" word, yes a "recession"?  We tackle these questions and more in our recent podcast  "5 Common Questions Around Recession"

  • What exactly is a recession? A recession is a period of economic contraction, generally characterized by a decline in Gross Domestic Product (GDP) for at least two consecutive quarters. During a recession, unemployment rates tend to rise, and consumer spending tends to decrease.
  • How long do recessions typically last? Recessions can vary in length, with some lasting only a few months and others lasting several years. The length of a recession depends on various factors, such as the severity of the economic downturn, the actions taken by governments and central banks to stimulate the economy, and the overall health of the global economy.
  • What can I do to protect my investments during a recession? During a recession, it is important to have a diversified investment portfolio that includes a mix of stocks, bonds, and other asset classes. A financial advisor can help you assess your risk tolerance and develop a strategy that is appropriate for your individual situation. In general, it is best to avoid panic selling and to stay invested for the long term.
  • How will a recession affect my job and income? During a recession, companies may cut jobs and salaries to reduce costs. It is important to have an emergency fund that can cover your living expenses for several months in case you lose your job. A financial advisor can help you develop a budget and savings plan to prepare for the possibility of a recession.
  • Is it a good time to invest during a recession? While it can be tempting to avoid investing during a recession, history has shown that markets tend to recover over the long term. In fact, some of the best investment opportunities can arise during a recession when prices are low. A financial advisor can help you identify potential investment opportunities and develop a strategy that is appropriate for your individual situation.

Recessions are not uncommon by any means.  They are truly a normal part of the overall economic cycle.  Recessions are needed to cool off inflation and bring the economy back into balance, so we do not have so much money chasing so few goods. Inflation remains the lynchpin in regard to the decision making of the Federal Reserve, and as long as it remains elevated, we can expect rates to continue to move higher.  The question remains, when does it end?

9i Capital Group LLc is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.