If “inflation” was the main phrase for investors in 2022, “recession” is set to take its place this year. How severe will the recession be, and how long will it last? What should be our investment strategies?
“This recession will be shallow but long”
How long will this recession persist and how severe will it be? The US economy is likely to experience a recession starting in the first quarter of 2023, and as a result, the bottom is anticipated to be reached by the end of the third quarter. While the economy won’t get much worse after the fourth quarter, it would still be in a recession for roughly two more quarters, until the end of the first half of the following year.
In summary, the recession would last for 18 months and be “shallow but lengthy.” From now until around September of this year, the economy will experience a full-fledged recession; from October of this year until June of next year, it will then drudge along sideways.
“March and December, two critical points for stock markets”
If we can expect a full-fledged exit from the recession only after the first half of next year, what will happen to the stock market? It is said that the stock market usually precedes the real economy by about six months.
In light of this, if the economic downturn’s peak occurs as predicted in August or September of this year, the stock market, which has been on a downward trend since 2022, may begin to recover as early as March. Even while a V-shaped recovery might not appear right away, stock prices at that time may have reached a significant inflection point. We cannot completely rule out the chance that positive news would lead to a strong increase in stock prices, such as a significant economic stimulus following China’s reopening of Covid19 or the quick progress of the peace talks in Ukraine.
The shift to a true economic expansion won’t happen until around June 2024, though, if September is just the economy’s rock bottom and it moves sideways for two or three quarters without emerging from the economic slump. As a result, the stock market may fully recover by year’s end or the beginning of 2024. Investors are therefore recommended to consider these timeframes while establishing their strategic goals for this year’s stock investment.