Out of Sync
The economy slowed in the first quarter of this year and leading indicators suggest further slowing in the balance of 2023. Investors should know, however, that equity declines do not always line up with recessions. The S&P 500 was up quarter over quarter in Q4 1990 and Q1 1991 when the economy was in recession. The equity markets declined in Q3 1990, before the recession started.
Since markets and growth are sometimes out of sync, our Strategic and Tactical Asset Allocation Committee (STAAC) view is equity markets will not likely retest last year’s lows despite rising recession risks. That said, the path to the end of the year could be rocky, especially with potential unexpected shocks that may come out of Washington, D.C., Europe, or China.
Conclusion
We think the U.S. is poised to slip into a mild, short-lived recession later this year. The head fake from last year’s two quarters of negative economic growth and the uncertainty from an aggressive Fed were primary culprits for pushing down the markets last year. Although 2023 has its fair share of risks, we do not think markets will retest last year’s lows, despite the likelihood of a recession later this year. Perhaps the relationship between the equity markets and the 1990-91 recession is most informative for the current outlook.
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