A Recession Is Among Us | How to Be Prepared

The stock market has been a bloodbath since the beginning of the year. We just witnessed the worst start to the stock market since 1939 with the nasdaq composite being down over 20% YTD and the S&P 500 index being down about 15% YTD. Since the the covid shutdown, we had a massive bull run despite the pandemic. This was a result of the Federal Reserve printing a massive amount of money by buying assets such as treasury bonds and mortgage backed securities. This has left inflation soaring 8.5% for the year in march. With the Federal Reserve ending their tapering process and going straight to tightening monetary policy.

With all of the circumstances there has been a lot of fear over the possibility of a recession. On April 1st of this year, we actually saw the yield for the 10 year treasury bond drop below the 2 year treasury bond. This is known as the “Inverted Yield Curve”. Historically the inverted yield curve has been a reliable indicator to predict upcoming recessions.

Also, during the FOMC meeting on May 4th, Jerome Powell was asked if he believed we would see a soft landing and Powell seemed very confident that we wouldn’t see a recession. He expressed that the economy is actually in a good position and can handle the tighter monetary policy. Looking at the data, almost every time the federal reserve begins a rate hike cycle, we see a recession.

Federal Fund Rate and Recessions
https://piper2.bluematrix.com/sellside/EmailDocViewer?encrypt=10a3d02e-a460-44aa-bf57-2be5effc5c54&mime=pdf&co=Piper&id=dwessel%40brookings.edu&source=mail

The truth is if we are going to see a recession, we are likely seeing the worst right now. The best way to prepare for a recession or bear markets is to continue dollar cost averaging in good large cap stocks, index funds, mutual funds. The market is always going to see corrections and bear markets so as long as you are well diversified and good funds you will see your portfolio appreciate all the time.

In the meantime, cover your eyes and ears and ride the wild rollercoaster until all of this comes to an end.

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May 4th FOMC meeting recap: https://www.youtube.com/watch?v=hGxfUH603UU

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