A Recession Like No Other: What Does It Mean For Investors?

by Infinity

The US economy shrunk for a second consecutive quarter in Q2 2022, which technically means that it is in recession. We look at the whys and wherefores and what it means for investors.

The US witnessed a 1.6% contraction of GDP in Q1 followed by a?Q2 contraction of 0.9%.?Technically, according to?official definitions, that means the country entered recession. However, in the US it is the National Bureau of Economic Research (NBER) that decides whether the US is in recession, and they have yet to officially announce that to be the case.

That could be because this is a recession like no other. A recession is generally characterised by job losses, a slowdown in private sector activity, the closing down of businesses and strain for household finances. Yet this is not what is currently happening in the US.

While it’s true that business investment and government spending are weakening, consumer spending remains relatively strong, and this is providing a glimmer of hope for many economists who are taking it as an indication of underlying growth. Another positive is the relative strength of the labour market, which it is hoped will further bolster the economy.

US secretary to the Treasury, Janet Yellen, is bullish saying that the US economy ‘remains resilient’. Nevertheless, let’s not pretend that the economic landscape is rosy. The Federal Reserve faces the difficult task of attempting to both slow inflation to a target rate of?2%?and sustain economic growth, which is no mean feat.

The Fed uses interest rates to attempt to counter high inflation. These were increased by 0.75% in July, in line with expectations following rises of 0.25% and 0.50% in March and May. The aim is to keep rates between 2.25% and 2.5% and whether there will be additional rate rises later in the year is the question on everyone’s lips.

Rob Clarry, investment strategist at, Evelyn Partners, Infinity’s exclusive partner in Asia said ‘The key question that markets have been grappling with over the last month is whether the Fed will deviate from its current tightening plans. Falling commodity prices, deteriorating consumer confidence and slowing growth could tempt the Fed to take its foot off the gas in upcoming meetings.’

If inflation continues to rise, the Fed will need to decide whether to prioritise reducing inflation or maintaining growth. They are more likely to opt for the former which could mean a broader economic slowdown.

Will the Fed succeed in taming inflation? Will interest rates rise further in 2022? The uncertainty surrounding these big questions are inevitably affecting global stock markets.

After the post-pandemic rally in 2021, the first half of 2022 has been characterised by market weakness and has been uncomfortable for many investors with bonds and equities falling in response to high inflation and interest rates. In Q2 the MSCI World Index experienced its sharpest fall in 50 years.

In spite of the gloomy news, we still believe that staying invested over the long term is the wisest course of action for most of our clients. Exiting the market at this point will mean losing out on the rebound when there is a recovery, which there inevitably will be. If your investments are concentrated in multi-asset portfolios you can be sure that active managers will be focusing on quality, reliable businesses and diversifying portfolios during this period of market correction. They will also be profiting from what is essentially a buying opportunity in preparation for the recovery.

If you have concerns regarding your investments, speak to Alex. It is possible to rebalance your portfolio and adopt a more defensive position, but knee-jerk reactions should be avoided.

Get in touch with Alex here or at [email protected]

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Tilney (now rebranded as Evelyn Partners) is an award-winning financial planning and investment company that builds on a heritage of more than 185 years. They have won numerous awards and their clients include private individuals, families, charities and professionals. They presently look after more than USD70 billion.

At Evelyn, your personal wealth is their personal responsibility.

Evelyn's award-winning services are now available in Asia exclusively through Infinity, and can be applied to new and (probably) existing investments.

To learn more, drop Alex a line.

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Get in touch with Alex here or at [email protected]