Economists surveyed by the Wall St. Journal now say there’s a 44% chance of a recession—up from just 18% in January. The newspaper noted that “a 44% recession probability is seldom seen outside of an actual recession.”1
What should investors consider doing in response to this seemingly alarming news? Arguably, a lot less than they might think.
Making major investment moves, such as jumping in and out of the market, based on the possibility of a recession—and even the high likelihood of a recession happening—could very well be a recipe for disappointment. That’s because, as the chart below reveals:
- The average length of the 12 recessions since World War II was just over 10 months.
- Stock prices peaked roughly 6 months prior to the actual start of the recessions, on average.
- On average, stock prices bottomed out around 4.5 months before those recessions ended.
The takeaway: By the time we actually know we’re in a recession, stock prices have likely already fallen—and by the time we know the economy is back on track, stock prices have almost certainly risen.
What’s more, economists have a terrible track record when it comes to predicting recessions. One study by the International Monetary Fund that looked at 153 recessions in 63 countries found that the vast majority were missed by economists.2
At Horizon, there are many ways we position our goals-based Gain, Protect and Spend portfolios to reflect developments in the economy and other factors. Taking risks based on recession predictions isn’t one of them—and we don’t think it should be for investors, either.
1 The Wall Street Journal, June 19, 2022
2 International Monetary Fund, “How Well Do Economists Forecast Recessions?”, March 5, 2018
This commentary is written by Horizon Investments’ asset management team.
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