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As economic growth cools and inflation heats up, we are hearing more about recessions. Let’s talk recession and what’s happening with the latest GDP report.
Markets in a Minute: Recession? Does it Matter?
Last week, the Bureau of Economic Analysis reported that the US economy was estimated to have declined for the second quarter in a row, after adjusting for inflation. The data release prompted the word “recession” to spring up in headlines right and left, leaving some investors wondering if they should head for the hills. But before anyone hits the panic button, remember that by the time a recession is actually called, most of the damage in the markets has already happened.
What do we actually know about economic growth?
U.S. GDP, change from previous quarter
Kestra Investment Management, Bureau of Economic Analysis, Wall Street Journal surveys of economists. Data as of August 2, 2022.
What exactly is a recession anyway? (Nerd alert! Feel free to skip the following if you’re not interested in the nitty gritty.)
Should investors care if and when a recession is called? There are reasons to not pay too much attention.
“Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties.”- Paul Samuelson, winner of the Nobel Prize for Economic Sciences
With the S&P 500 having fallen more than 20% from its peak, the market has already priced in significant slowing of economic activity. Investors should do well to remember that the stock market is willing to sacrifice being wrong in favor of being quick, whereas the BEA and NBER choose accuracy over timing. So the official signal that the economy is in recession often comes when it doesn’t matter anymore to the market.
Instead of worrying about recessions, we recommend a back-to-basics approach that ensures portfolios are properly diversified and take a level of risk that makes sense for the individual’s goals, risk level and time horizon. Focus on companies with attractive valuations and high-quality earnings. These types of businesses have a history of withstanding short-term vagaries in the market and reliably delivering returns to shareholders even when the road gets bumpy.
As we’ve written before, and likely will again, if you’re fretting about market gyrations, take your portfolio in for a checkup. Please contact us to ensure that your portfolio is properly aligned with your risk tolerance, which is key to meeting your financial goals.
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Private Wealth Services, LLC, Kestra Investment Services, LLC, Kestra Investment Management, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by any entity for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation. Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Private Wealth Services, LLC, Kestra Investment Services, LLC, Kestra Investment Management, LLC, Bluespring Wealth Partners, LLC, and Grove Point Financial, LLC does not offer tax or legal advice.