If you’ve been watching the stock and bond markets this year, you’re likely worried about your investments. Times like these reinforce the validity of our strategy to diversify into alternative strategies. Year-to-date, Real Estate, Commodities, and Private Credit represent our best performing asset classes.
Inflation, tightening monetary policy, supply chain issues, and geopolitical events all contributed to the market volatility. We’re not in a recession yet, but the probability of a recession is rising. Experts disagree on the level of likelihood. According to JP Morgan’s Global Market Strategist, Gabriela Santos, the risk of a recession has increased to a 40% to 45% chance over the next twelve months. Credit Suisse likewise believes that a recession is a possibility but less likely through the end of 2023. Gabriela reminds us that recessions are normal and expected, and if we do move into a recession, she anticipates it to be milder than the previous two. She added that the U.S. stock market always recovers to previous peaks.
The stock market tends to be a leading indicator and may have already priced in a potential recession. Schwab’s Chief Investment Strategist, Liz Ann Sonders, takes a more negative view and believes the “Market has likely priced in at least [a] mild recession, but not likely [the] earnings compression to come.”
The stock market return during the first six months of 2022 was the worst first-half-year return in decades. On a more positive note, below is a chart that shows the second half of the year equity returns during the five times since 1930 when the first half of the year had a negative return of over 15%. Although it is impossible to determine when we hit bottom, the historical numbers are encouraging.
We continue to make small tactical changes to our portfolios based on economic developments. The most recent changes we made included a minor shift from consumer discretionary stocks to consumer staples, and from financials to energy. We continue to believe in our investment approach and feel holding the course is the best approach for the time being. Let us know if you have any questions or concerns.