In my 50 years of managing money—which began in the days when Carly Simon was a hit—recessions have mostly been surprises. Now, everyone is expecting one.
The Philadelphia Fed’s measure of recession potential has reached a record high. A poll from The Conference Board showed that 98% of US CEOs expect a recession to occur within 12 to 18 months, with 99% expecting the same for Europe. KPMG found that 63% of CEOs in the Asia Pacific region expect a recession. In Taiwan, it’s 9 out of 10. It’s certainly the most anticipated and longest recession in recent history.
This is where Carly Simon comes in. No stranger to life’s surprises, he wrote on her 1971 single “Expectation”, “We can never know the coming days but we think about them anyway”. This is key because, like me mentioned in this column on Christmas DayForewarned, forewarned. When you’re careful, you prepare. In short – to concoct a rhyme that I would never accuse Carly of writing herself – the expectation is to dilute.
No stranger to life’s surprises, he wrote on her 1971 single “Expectation”, “We can never know the coming days but we think about them anyway”.
Carly Simon performing on stage, New York, April 1978
ads
Talk of recession escalated last spring with the Ukraine war. Growth expectations and CEO confidence plummeted. Two quarters of (barely) deflationary US GDP raised alarms, making many believe we were already in a recession. right Now, Defcon 2 recession warnings. If you think CEOs don’t prepare, you should take them all as idiots. (And if you’re not prepared, you’re probably being stupid — or “too vain” to probably think this column isn’t “about you”).
More specifically, pessimistic business leaders dismiss growth endeavors and cut costs as if recession really existed. it was there 364,000 global layoffs since April. US job vacancies are down 12% from the March peak. More than a third of CEOs in the Asia Pacific region have a hiring freeze. Companies tend towards lean and mean fast.
In addition to headcount, the Global Federation of Advertisers found that nearly a third of multinational companies are cutting advertising budgets, with 75% putting spending plans under “intense scrutiny”. Companies are shrinking operations—speeding up receivables, eliminating productivity—reducing meetings, and even eliminating free coffee.
This is not how companies have historically acted before the downturn. On the eve of the recession in the fourth quarter of 2007, the Business Roundtable’s CEO Economic Outlook Index was launched higher. Respondents expected capital expenditures and employment to rise or stabilize. The headlines fueled the expansion plans of big tech and telecom companies well into 2008. The subsequent surprise deepened the pain of the recession.
Stagnations that wipe out the excesses of previous expansions – in fact, that’s why they exist. But this time, the companies have been running more and more since the spring. How much juice is left? Is it enough for a brutal recession and another bear market crash? unlikely. Widespread anticipation leads to little pullbacks – or none at all.
A mild recession would be consistent with 2022’s decline of 24.5% during the October bear market bottom — a cub by historical standards. And if we actually get past the recession, everyone will be shocked — and positively. Stocks move abruptly – hence the bull market going forward (smaller or bigger, like you mentioned on Christmas Day).
Note that since the good data began in 1925, 9 out of 10 bear markets in the US associated with a prolonged recession have ended. Before slack to the bottom. An ounce of prevention is better than a pound of cure. Nearly a year of corporate sobriety meant that any decline could not go down as bad as was feared.
Carly finished anticipation, “These are the good old days.” Be optimistic.
Ken Fisher is the four-time founder and CEO of Fisher Investments The New York Times Best-selling author and regular columnist in 17 countries around the world.
