US recession, what US recession?
A fortnight ago, markets were gripped by fears of US recession, suffering their worst trading day in nearly two years, but stocks quickly rebounded and the eruption in volatility was followed by an equally rapid decline.
Nevertheless, recession fears have not gone away. Bank of America’s latest monthly fund manager survey shows US recession is regarded as the biggest tail risk facing markets. Goldman Sachs says stock and bond market pricing suggest a 41 per cent chance of a US recession, up from 29 per cent in April.
Apollo Global economist Torsten Slok says such fears are overblown. Companies are talking “less and less about recession” in earnings calls, says Slok, who notes there has never been a recession at the current low level of recession talk.
The current debate aside, it’s worth remembering that the old joke about the market predicting nine of the last five recessions is, if anything, an underestimate.
Over the last 15 years, says Ritholtz Wealth Management’s Ben Carlson, the US has been in recession for just two months.
Over that period, the S&P 500 experienced five drawdowns ranging from 16 to 34 per cent.
“Only one of those drawdowns occurred because of a recession”, says Carlson, “so the stock market has predicted five of the last one recessions”.
The recent market whiplash is but the latest reminder that, as iconic investor Peter Lynch once quipped, far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.
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