Don't Get Disoriented by Recession-Talk Fatigue
Investors, economists and journalists have been talking incessantly about recession for the better part of the past year, and they’re all tired of it. Everyone would like to make a clean break from 2022 and move on to another story. Unfortunately, it’s unclear whether reality plans to cooperate, and there’s a growing risk that collective jadedness with recession chatter may cloud our judgment about the real and continuing threat of a downturn.
Understandably so. The word “recession” appeared in more than 650,000 news headlines last year, with peak hysteria in July. At the time, many people speculated that the US was already in a recession. Although it wasn’t, we then spent the rest of the year talking about how one was still in the offing; unemployment was poised to rise; home prices were set to fall; and the S&P 500 Index could dip as low as 3,000. It was so much gloom that bearishness became passé. After 12 months of relentless pessimism, none of these forecasts has come to pass, so surely the histrionics are misplaced, some will reason.
Markets even took a turn for the better this month amid all the warm and fuzzy new year vibes. But is any of this optimism to be trusted, or are we simply reaching for a new narrative to break up the monotony? Are we simply ... bored? If an investor parachuted into 2023 without ever having endured 2022, could this market possibly be a buy?
Consider the long history of pre-recession rebounds in financial markets. Traders have often marshaled one last big S&P 500 bounce — one final hurrah — before they sensed that the economy was really, truly going to pieces. At the time of said rally, the Federal Reserve was often winding down a campaign of interest rate increases, but it was still too early to see the full consequences (sound familiar?)