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IN-DEPTH: What Financial Analysts Are Recommending for Investing in a Recession

Andrew Moran

Apr 26, 2023

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, on April 14, 2023.

Gold is another safe-haven asset put forward by financial experts. The yellow metal has trended higher since November on a weakergreenback and the Federal Reserve’s easing monetary policy prospects.Year to date, gold prices are up nearly 10 percent and recently flirted withthe August 2020 record high of $2,069.40.Gold is typically sensitive to interest-rate movements because they canaffect the opportunity cost of holding non-yielding bullion. The buck’sperformance can make dollar-denominated commodities more expensiveor cheaper for foreign investors.The other factor has been weakening economic data, says Stephen Akin, “The primary fundamental event that propelled gold well above $2,000 registered investment advisor at Akin Investments.was weaker U.S. economic data,” he told The Epoch Times. “This datasuggest that the Federal Reserve could certainly consider slower rate hikesand a pause of rate hikes sooner.”


 

The recession has become the talk of the town again in the U.S. economyand financial markets, with many leading downturn indicators flashingred.In March, The Conference Board’s Leading Economic Index slumped to itslowest level since November 2020, declining by 1.2 percent and deepeninginto contraction territory.The spread between the two- and 10-year Treasury yields, which hasforecast nearly every recession since the Second World War, settled theApril 20 trading session at negative 60 basis points. The gap has widenedsince July 2022. The Federal Reserve’s preferred recession measurement—the three-month and 10-year yields—finished the session at negative 1584New Wind Energy UK and Netherlands AnnouncedPower Line Between basis points.


Minutes from the Federal Reserve’s Federal Open Market Committee(FOMC) policy meeting in March revealed that central bank economistsexpect a recession later this year as the fallout from the banking turmoilspreads throughout the national economy.Other economists and market experts agree. A recent Marquee QuickPollfor Goldman Sachs, for example, revealed that 53 percent of investorsexpect a recession this year.“I believe that a near-term recession is more likely than unlikely. It will bevery difficult for the Fed to engineer a soft landing for the economy andstill win the battle to stem inflation,” Robert R. Johnson, a professor offinance at Creighton University’s Heider College of Business, told TheEpoch Times. “The problem with recessions is that we don’t know we haveentered one until after the fact, and we also don’t know we have exited one until after the fact.”


But for many Americans, the recession might already be here.According to the CNBC All-America Economic Survey, 66 percent ofAmericans think the United States is headed for a recession or is already inone. Moreover, a January Morning Consult study found that 46 percent ofU.S. adults believe the nation is entrenched in a recession.


How should investors prepare for this environment if a recession is on the horizon or has arrived? Navigating the Markets Despite bank failures, credit contraction, and tightening lending standardsthat might slow the economy, this “does not mean you can’t make moneyin stocks,” according to Nancy Tengler, the CEO and CIO of Laffer TenglerInvestments, in a note.Johnson thinks recessions could be an opportunity to enter the market orbuild on existing positions “as stocks are selling at prices below previous highs.”


What exactly should you be looking for in today’s climate?According to Ben Fraser, the CIO of Aspen Funds, it is paramount forinvestors to possess “diversification” in their portfolios.“Having diversification across multiple investment asset classes andstrategies will soften the impact of a recession,” Fraser explained to TheEpoch Times.Michael Collins, the founder and CEO of WinCap Financial and professorat Endicott College in Massachusetts, shares this recommendation aboutdiversification. He told The Epoch Times that investors need to concentrateon “diversified, long-term investments and seek out deflation-resistant,stable investments.”mutual funds,” he said. “Adding gold and other precious metals can also be “This should include investments in blue-chip stocks, bonds, and low-riskbeneficial as a hedge against inflation and market declines.”Investment diversity has been the go-to recommendation for manyfinancial experts, but the limited research on this subject suggests thatonly a third of investors ensure their investments are diversified.At the same time, not everyone is in lockstep with diversification,including billionaire investor Warren Buffett, who asserted that thestrategy “makes very little sense for anyone that knows what they’redoing.”


“It is a protection against ignorance,” Buffett said.Investors can also shift their investment portfolios to defensive sectors“that are less affected by slowing economies,” says Richard Gardner, theCEO of financial technology firm Modulus. This includes health care,consumer staples, and utilities.It could also be a perfect time to “investigate the financials of yourinvestments,” Gardner told The Epoch Times.“Stick with companies that have the balance sheet and cash reserves tomake it through the storm and come out the other side,” he noted. “This isparticularly valuable when taking a long-term approach to investing.”With governments worldwide investing significant taxpayer dollars in thegreen energy industry, even as economies might be heading into arecession, Tengler thinks this could be an exceptional trading opportunity.Tengler has picked potential investment options for green tech, metal,miners, and hydrogen.“We also like the clean-energy commodities and have recently added tosome of those names as well as energy yesterday and continue to add toconsumer discretionary,” she stated. “Focus on reliable earners with great,seasoned management teams.”


Bonds and GoldThe global bond market has been volatile over the last 18 months, whetherin the U.S. Treasury arena or the U.K. gilts. Heading into 2023, the BarclaysGlobal Aggregate Bond Index—a benchmark of about $70 trillion ofsovereign and corporate debt—had tumbled nearly 5 percent since 2021.But many of these indexes have rebounded so far this year, such as theVanguard Total Bond Market ETF (3.2 percent), iShares Core U.S. AggregateBond ETF (3.2 percent), and SPDR Portfolio Aggregate Bond ETF (3percent).recession since these instruments offer regular cash flow, a predictable For years, standard investment advice has been to invest in bonds during afixed income, and a reduced chance of losing your principal.Long-term bonds have been a reliable pick during five of the deepestrecessions in the last century, says John Rekenthaler, a member of Morningstar’s investment research department.“Through each of the five deepest recessions during the past 100 years—two of these have occurred within the past 20 years, so this is not justancient history—long government bonds not only turned a profit but alsooutdid Treasury bills,” he wrote in a report. “On four out of those fiveoccasions, equities crashed. Long Treasurys have therefore offered strongprotection against stock market declines caused by economic weakness.”In addition, it is worth noting that interest earned from Treasurys andmoney markets are not subjected to state and local taxes, although theyface federal levies. By comparison, a certificate of deposit (CD) offershigher rates but will be slapped with federal and state income taxes.


For the broader economy, Morningstar analyst Sandy Ward recently statedthat the bond market is flashing red, signaling recession, rising creditstress, and weakening economic conditions.Gold is another safe-haven asset put forward by financial experts.The yellow metal has trended higher since November on a weakergreenback and the Federal Reserve’s easing monetary policy prospects.Year to date, gold prices are up nearly 10 percent and recently flirted withthe August 2020 record high of $2,069.40.Gold is typically sensitive to interest-rate movements because they canaffect the opportunity cost of holding non-yielding bullion. The buck’sperformance can make dollar-denominated commodities more expensiveor cheaper for foreign investors.The other factor has been weakening economic data, says Stephen Akin, a “The primary fundamental event that propelled gold well above $2,000 registered investment advisor at Akin Investments


The other factor has been weakening economic data, says Stephen Akin, a registered investment advisor at Akin Investments. "The primary fundamental event that propelled gold well above $2,000 was weaker U.S. economic data,” he told The Epoch Times. “This data suggest that the Federal Reserve could certainly consider slower rate hikes and a pause of rate hikes sooner.”


Collin Plume, the CEO of Noble Gold Investments, would not be “surprisedif 2023 saw a new record high for gold prices” as the global economy“teeters on the edge of recession.”Emerging MarketsSome experts believe it would be advantageous to consider emergingmarkets, such as Brazil, China, and India—with or without a recession.This could be a prudent step, considering that the International MonetaryFund (IMF) forecasts that emerging markets and developing economieswill expand by 3.9 in 2023 and 4.2 percent in 2024.“If we avoid a recession, it may be worthwhile for investors to look moreclosely at emerging markets which often can provide higher returns butassume a greater risk,” Gardner stated.


Stocks with “upside potential” should be assessed as options for a “This could include investing in riskier assets such as small-cap stocks, recession-era investment strategies, including riskier assets.venture capital, and commodities,” Collins said. “Investors should alsoconsider adding international investments to their portfolios and investingin sectors that are expected to grow in the long-term, such as technologyand healthcare.”at Thornburg, traders should reconsider international equities, purporting According to Emily Leveille, the portfolio manager and managing directorin a note that valuations are generally lower than in the United States. U.S. that has widened since COVID,” Leveille wrote in a research note last “Over the past 10 years, foreign markets have traded at a discount to themonth. “If the U.S. market indeed falls into recession this year, and equityprices contract further, the ex-post valuation disparity will have shownitself to be even wider.”A peaking U.S. dollar, lower energy prices, and China’s economicreopening would be other reasons to incorporate emerging markets intoportfolios.


Where Is the Market Headed?

Despite everything that has transpired in the first few months of the year—from higher interest rates to banking turmoi—the leading benchmarkindexes have held steady.Year to date, the Dow Jones Industrial Average is up 2 percent, the NasdaqComposite Index has rallied more than 15 percent, and the S&P 500 Indexhas surged nearly 8 percent.So, where does Wall Street think the market is headed for the rest of theyear?The present risks to the equities arena are earnings cuts and valuationadjustments. Monetary policy could also affect the direction of stocks.Investors are penciling in one more rate hike at the May FOMC policymeeting and planning for rate cuts later this year and heading into 2024 inresponse to slowing economic conditions, according to the CME FedWatchTool.A February 2023 Reuters poll found that strategists expect the S&P 500will finish the year at 4,200. The index has been trading at around 4,100.But while industry observers are always on the hunt for trends, the rest ofthe year may be a time for the stock market to be stuck in “limbo,” says Jurrien Timmer, the director of the global macro in Fidelity’s Global AssetAllocation Division.“Indeed, the cycle seems to be meandering without a clear inflection,” hewrote, adding that fund flows are displaying “neither hope nor despair.”“A period of ongoing base-building may lie ahead for the market,” he said “For investors, the key for now is patience.”





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