A stock market in seeming free fall, flagging consumer confidence and the lengthy recovery from the Great Recession of 2007-09 all point toward another recession… perhaps in 2019 or 2020.
The Christmas Eve stock market declines were not encouraging. The Dow’s plunge on Monday of 2.91% and the S&P 500’s shedding of 2.71% marked the biggest Christmas Eve declines in the two indices’ history. A week ago, stocks had their worst week since the Great Recession. The market last suffered such massive December losses in 1931, during the Depression.
A recession is generally defined as any period in which the gross domestic product (GDP) falls for two consecutive quarters. That, of course, implies a slowing before the actual declines. Consumer spending falls, companies tighten spending, jobs are lost.
Is a recession easily predictable? In December of 2007, a CNBC analyst said, “There’s no recession coming. It’s not going to happen.” Weeks later, the largest economic downturn since the Depression began. That analyst was Larry Kudlow, now director of the National Economic Council and a close adviser to President Donald J. Trump.
On the other hand, economic growth is still strong, as is employment. A recession is no certainty, even if a slowdown occurs. A trade deal with China would also be reassuring in the face of further increases in tariffs.
So if the smart guys can’t always see it coming, what is the everyday investor supposed to do if the United States’ and global economies turn sour and losses chew up 401(k) accounts?
Remaining invested is still a good idea. Recessions give way to recoveries, though no one can set the timetable. While hunkering down against uncertainty, keep in mind the places where money may be safest:
- Precious metals. Gold, silver, copper, platinum. During the last week of December, as stocks fell precipitously, gold hit its highest levels since June.
- Core sector stocks. Even in a recession, people still need the staples – electricity, gas, basic consumer goods. Utilities can be a great refuge and generally pay a dividend as well.
- Certificates of deposit. After a round of interest-rate hikes by the Federal Reserve in 2018, cash has made a bit of a comeback. An 18-month CD could pay as much as 2.75%, while a 12-month CD may pay 2.7 percent. CDs can be rolled over or cashed in at maturity and then put back to work in higher-yielding securities when the economy takes a turn for the better.
Nobody roots for a recession. It is often said that economists have predicted nine of the last five recessions. But an economic downturn need not devastate an individual’s investment portfolio.