Latest News

Vanguard: There’s a 65% Chance of a Recession. Here’s How to Prepare

0

S&P 500

3,655.04

-38.19(-1.03%)

 

Dow 30

29,260.81

-329.60(-1.11%)

 

Nasdaq

10,802.92

-65.00(-0.60%)

 

Russell 2000

1,655.88

-23.71(-1.41%)

 

Crude Oil

76.52

-0.19(-0.25%)

 

Gold

1,631.70

-1.70(-0.10%)

 

Silver

18.34

-0.14(-0.73%)

 

EUR/USD

0.9589

-0.0099(-1.03%)

 

10-Yr Bond

3.8780

+0.1810(+4.90%)

 

GBP/USD

1.0656

-0.0201(-1.85%)

 

USD/JPY

144.7180

+1.3980(+0.98%)

 

BTC-USD

19,136.71

+317.39(+1.69%)

 

CMC Crypto 200

438.96

+5.86(+1.35%)

 

FTSE 100

7,020.95

+2.35(+0.03%)

 

Nikkei 225

26,431.55

-722.28(-2.66%)

 

Analysts at the mutual fund giant

Analysts at the mutual fund giant Vanguard estimate the likelihood that the U.S. will drop into a full-blown recession sometime during the next 12 months at 25%, and some time during the next 24 months at 65%.

The Vanguard analysts aren’t alone.

A SmartAsset survey of nearly 300 financial advisors taken in early August found that 80% believe the U.S. either is already in a recession or will enter one during the next 12 months. A rough rule of thumb to define an economy in recession is when it records two straight quarters of declining economic growth. For the second quarter of 2022, the country’s gross domestic product (GDP) fell by 0.9% after a contraction of 1.6% for the first quarter.

But many believe it takes more than just negative growth to constitute a recession.

For help understanding what a recession is and how to strategize your investments to navigate a down market, consider working with a trusted financial advisor

Is a Recession Coming? 

Other factors also are part of whether an economy is in a recession. They includes employment, which has remained high despite the GDP figures, with a jobless rate of 3.7% for August, a level well below the 5% unemployment rate economists have traditionally considered full employment. In addition to adding more than half a million jobs, inflation stalled between June and July. Since then, gas prices have fallen, housing prices have dropped and consumer spending has remained strong.

Even with those signs of improvement, prices are remain higher than before the pandemic. Even if inflation disappeared tomorrow – dropping to 0% for the rest of the year – the inflation rate for December would be 6.5%. That’s unlikely, so the Federal Reserve’s Open Market Committee is expected to keep upping interest rates. Right now, another hike of at least 50 (0.50%) or 75 (0.75%) basis points is set for this week, with more increases continuing into 2023.

The Vanguard analysts wrote that they expect the Federal Reserve to increase its federal funds rate target to a range of 3.25%–3.75% by the end of the year, which will increase rates on mortgages, auto loans, credit cards and other consumer and business borrowing. The aim is to reduce the amount of available money in the economy in order to lower demand for goods and services, resulting in lower prices to bring inflation down.

The higher rates also are designed to increase unemployment, reduce business earnings and frighten business managers and consumers away from spending in favor of conserving cash to avoid running out of money. This is what Federal Reserve Chairman Jerome Powell meant when he recently said that the coming interest rate increased will bring “some pain to households and businesses.”

One indicator the Vanguard projection points to is the spread between the 10-year Treasury bond and the 3-month Treasury bill. In a strong economy, long-term interest rates are higher than short-term rates, such as the 1.64% spread between Treasuries in June, well above the long-term average of 1.20%. Since the end of June, however, the spread dropped to 0.29% by the beginning of September, a strong indicator of potential recession.

How to Prepare Your Portfolio for a Recession

Stocks already are down this year and would decline even more in a recession as corporate earnings suffer. Stocks typically drop before a recession and bottom out before the downturn ends. In the face of a coming recession, investors should:

If you have a long-term plan that includes riding out downturns, stick to it.

Consider dividend-paying stocks and other passive income generators

Build up your cash reserves, including an emergency fund if you face job loss

To hedge against inflation, look at gold, silver and Treasury Inflation-Protected Securities (TIPS)

Review your investment plans and asset allocation and avoid volatile stock sectors. If you don’t have one, create one with a trustworthy financial advisor.

The Bottom Line

Vanguard predicts there’s a 65% chance the U.S. will experience a recession in the next 24 months. There are steps, though, investors can take to prepare themselves for a downturn.

Tips for Weathering a Recession

financial advisor can help you recession-proof your portfolio, while still growing your money. Finding the right financial advisor is made much easier with SmartAsset’s free tool. In fact, it can match you with up to three financial advisors in your area in five minutes. Get started now.

Your investing strategy should account for the possibility of a downturn, which is why your asset allocation should be more conservative as you approach retirement. By reducing your exposure to stocks, you can avoid the possibility of your retirement accounts taking a big haircut right as you need them. If you’re still in the market when a recession hits, consider these five things to invest in during a recession.

Photo Credit: ©iStock.com/sefa ozel, ©iStock.com/Nuthawut Somsuk

The post Vanguard Says There’s a 65% Chance of a Recession – Here’s What to Do appeared first on SmartAsset Blog.

Advertisement

The Wall Street Journal

Buying the Stock-Market Dip Is Backfiring. Investors Keep Piling In Anyway.

It is the worst year for buying the stock-market dip since the 1930s. Instead of rebounding after a tumble, stocks have continued to fall, denting a strategy that soared in popularity over the past decade.

SmartAsset

Putting 20% Down on a Mortgage May Be a Mistake

When you put 20% down on the purchase of a home, you don’t have to borrow as much money as someone whose down payment is only 5% or 10%. And as a result, your monthly mortgage payment may be considerably … Continue reading → The post This One Chart Shows Why Putting 20% Down on a Mortgage May Be a Mistake appeared first on SmartAsset Blog.

TipRanks

‘It Could Get Worse Before It Gets Better’: Carl Icahn Uses These 2 Dividend Stocks to Protect His Portfolio

After a grisly 1H22 which represented the stock market’s worst performance since 1970, the second half is shaping up to be a bit of a disappointment too. After clawing back some of the losses, it’s been onto the slide again with the S&P 500 almost back to the mid-June lows. The bad news, according to billionaire investor Carl Icahn, is that things could still get worse from here. “I think a lot of things are cheap, and they’re going to get cheaper,” said Icahn, pointing to the economic malaise,

MarketWatch

Is recession talk worrying you? Here’s how current and future retirees can make sure they’re prepared.

Talk of recession is never comforting, especially for people who are on a fixed income or who are looking to retire in the next few years. Roger Aliaga-Diaz, U.S. chief economist and head of portfolio construction at Vanguard, told MarketWatch he expects a recession next year. With inflation rising and volatility in the stock market, Americans are wondering how best to prepare.

SmartAsset

Americans Aren’t Satisfied With Their Retirement Plans Online – J.D. Power Ranks the Best

Facing both inflation and a possible recession, retirement investors are under a lot of financial stress in 2022. And they are looking at their retirement plan providers for both information and guidance. But the Michigan-based consumer research firm J.D. Power … Continue reading → The post Americans Aren’t Satisfied With Their Retirement Plans Online – J.D. Power Ranks the Best appeared first on SmartAsset Blog.

Benzinga

The Jeff Bezos-Backed Real Estate Company Is On A Buying Spree For Single-Family Homes

The real estate investment platform backed by Amazon.com Inc founder Jeff Bezos has continued ramping up its acquisitions of single-family rental homes in several U.S. markets. Arrived Homes acquires single-family homes to use as rental properties, then sells shares of these properties to investors through its online platform. The demand for rental property shares has grown exponentially so far in 2022, with a total of 165 properties now funded on the platform with a value of over $60 million. T

MarketWatch

Here’s when Vanguard’s chief U.S. economist now thinks we’re ‘most likely’ to enter a recession — and what may be the ‘biggest risk’ you face if we do

MarketWatch Picks has highlighted these products and services because we think readers will find them useful; the MarketWatch News staff is not involved in creating this content. With markets posting double-digit losses, inflation breaking decades-old records, and the Federal Reserve steadily increasing interest rates, among other factors, the likelihood of a full-blown recession may seem inevitable. What’s more, Roger Aliaga-Diaz, the fund manager’s U.S. chief economist and head of portfolio construction, told MarketWatch Picks that he thinks a recession is “most likely” to occur sometime in 2023.

Bloomberg

John Paulson on Frothy US Housing Market: This Time Is Different

(Bloomberg) — John Paulson became a billionaire after his hedge fund effectively shorted more than $25 billion of mortgage securities at the dawn of the global financial crisis. As he sizes up yet another frothy housing market some 15 years later, the founder of Paulson & Co. says another downturn in US home prices may be in the cards — but the banking system is in a much better condition to handle it. Paulson sat down with Bloomberg for a wide-ranging interview at the Union League of Philadel

SmartAsset

Retiring During a Market Downturn? Only Withdraw This Way

It’s always hard to make your retirement savings last as long as you need it to – but it becomes even harder when you’re retiring during a market downturn, as Americans retiring right now are experiencing. A market downturn means … Continue reading → The post How to Retire During a Market Downturn: It’s All About Withdrawing This Way appeared first on SmartAsset Blog.

TechCrunch

EV charging deals keep coming, Ford squeezed by shortages and Kitty Hawk shuts down

One item on the menu that I can talk about is the Mercedes EQB, an all-electric SUV that should be landing in dealer lots any day now. You also can send a direct message to @kirstenkorosec. Acton, which you may remember purchased docking and charging startup Duckt some months back, has begun rolling out docking/charging stations across Paris.

Bloomberg

Stock Market Bear Recommends Going ‘a Little Bit Long’ on Stocks

(Bloomberg) — The broad selloff in risk assets is offering a buy signal to contrarian investors.Most Read from BloombergJohn Paulson on Frothy US Housing Market: This Time Is DifferentUK Market Selloff Slams Gilts, Pound, Piling Pressure on BOEWall Street Banks Prep for Grim China Scenarios Over TaiwanStocks, Commodities Drop; US Treasury Yields Surge: Markets WrapInterpol Issues Red Notice for Terra’s Do Kwon, Korea SaysCount Dennis Gartman among them.The retired publisher of the long-running

TheStreet.com

How Much Does the S&P 500 Return Annually?

How many times have you read or heard that the S&P 500 returns 10% per year? The actual average return — after adjusting for inflation, reinvesting dividends, and assuming you pay no taxes– is almost half that. How is the oft-quoted figure promising 10% average annual returns so far off?

Reuters

U.S. dollar strength creating ‘untenable’ situation that risks financial crisis -Morgan Stanley

The recent rally in the U.S. dollar is creating an “untenable situation” for riskier assets that could end in a financial or economic crisis, strategists at Morgan Stanley warned in a note Monday. The wild swings in currencies are another pressure on the global economy and corporate earnings, which are expected to fall as the Federal Reserve’s aggressive interest rate hikes over the summer begin to weigh on spending. “The ultimate lows for stocks, and highs for yields, will likely be determined by the growth trajectory in earnings and the economy rather than inflation or the Fed,” analysts including Michael Wilson at Morgan Stanley wrote.

Larry Summers called it again on the collapse of the British pound. Here’s how much worse it could get, analysts say

Previous article

‘It Could Get Worse Before It Gets Better’: Carl Icahn Uses These 2 Dividend Stocks to Protect His Portfolio

Next article

You may also like

Comments

Leave a reply

Your email address will not be published. Required fields are marked *

More in Latest News