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What I Care About This Week | 2023 Jan 3

man looking downwards of stairs

Photo by Avinash Singh on

by Franklin J. Parker, CFA

The Summary

The Details

I see a recession as likely this year.

In the end, this forecast is driven by the underlying economic data. No matter how you slice it, the economic data indicates an economy that has slowed considerably. Manufacturing, services, consumer spending, even many of the classic recession indicators, are all flashing yellow and red. Not to mention, the Fed is still restricting monetary policy and that is likely to push markets down even further.

Of course, it is notoriously difficult to predict exactly when the recession will hit. Even so, taking precautions now might make some sense.

But how should investors prepare? The trouble with the question is that the answer genuinely depends on your situation. For investors with a decade or more until their goal, staying invested and taking the lumps may well be the most appropriate answer. For investors who are a few years from their goals, building up cash and getting defensive may be the better option.

In any case, this is a topic you should be addressing now. Once the storm is here, it is much more difficult to prepare—or repair.

Chart of the Week

This week’s chart is a look at the index of leading economic indicators. As this chart shows, this index tends to peak and then begin falling ahead of recessions. It can be some time before the actual recession hits, however. As you can see, a year to 18 months is not uncommon. In February 2022, this index peaked, and has been falling ever since. This is one of the several recessionary indicators we are getting.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

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