2023-05-19 04:00:00
Just the widespread worry is the reason why you don’t need to worry. Because if it hits, this recession will be the longest-awaited on record — which would both weaken its impact and boost equities.
In the 50 years that I’ve worked with money, recessions have always been surprising shocks. Since mid-2022, however, almost everyone – including the OeNB – from Steyr to Seattle has been expecting a recession. In the US, according to the Federal Reserve in Philadelphia, their probability is at a record high.
Sounds scary! But CEOs worldwide also expect a recession soon, as written in January. And CEOs are not stupid. Think about what they’ve done so far to cut growth spending and drive down costs. Over 400,000 people have been made redundant worldwide since 2022. You see that in Austria with companies like GoStudent and BitPanda. Layoffs and austerity mean that four US tech giants are spending a combined €10.7 billion to cut future costs.
The slimming diets
As an EY survey shows, a third of CEOs worldwide are considering hiring freezes. In Austria, vacancies reached a record high in 2022, which shrank again in Q4. In the euro zone, new hires fell already in Q3 2022, for which the latest updated data are available. US job vacancies are 7 percent below March high. New hires have fallen 11 percent since February. According to EY, more than half of CEOs in Asia Pacific replaced hiring with cheaper training for existing employees.
Job cuts are tough for those affected. However, they do show that companies are getting lean and frugal – which is curbing the effects of a recession. According to the World Federation of Advertisers, almost a third of companies worldwide have slashed their budgets; 75 percent review their spending. Companies are increasing the collection of invoices and putting the brakes on investments in order to save every euro.
This is uncharacteristic of the period before a downturn. In Q4 2007, ahead of the global recession, the US Business Roundtable’s economic outlook index rose. The Eurostat confidence indicator for Austrian industry was positive until May 2008. And this time? Has he been negative since August. The shock has long since run out of power.
The trimming
Recessions exist to trim past excesses. Many companies have been doing just that for months. What’s left? A little maybe. But the mass precautions make a slight — or no — decline in 2023 more likely than a stock-crushing shock. Anticipation means damage limitation! This is supported by the 0.5 percent annualized improvement in GDP growth in the eurozone in Q4 and the 2.9 percent in the Americas.
And when the recession comes? Stocks tend to rise well before the end of a contraction. The market is pricing in the brighter future that leaner companies are heading into. Looking at the long history of the S&P 500, since 1925 in the US, 9 out of 10 recession-driven bear markets have ended before the downturn was over. Average lead time: 6 months. We’re probably experiencing that right now.
You’ve had this before. After March 18, 2020, the ATX lifted off its bottom, even though Q2 GDP fell by 11.3 percent compared to the previous quarter. After Austrian stocks hit their lowest point in the financial crisis on March 9, 2009, Austria’s GDP did not recover until Q3. And currently? Recession or not, months of austerity suggest big profits lie ahead in 2023.
Being prepared for the recession means that a downturn will not overturn the markets – not in Austria, Europe or worldwide. Now hold stocks. Be optimistic!
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