Be Ready For a Storm

At Emergent, we’ve talking many times about “weathering the storm”. The stock market, like many other aspects in life, has its ups and its downs, all of which we must face. In 2022, we have mostly faced downs. Year to date, we have seen a rather bearish outlook as the market has fluctuated somewhere between being 7-7.5% down. As an outlook that has already looked dim thanks to a struggling market and high inflation, the first GDP number of 2022 has been released—and it’s not a good one.

The US economy shrunk close to 1.4% for the first quarter in 2022. Instead of a growing economy emerging from the pandemic, we have a shrinking one. As many have heard by now, economists generally agree that two consecutive quarters of negative GDP growth determines a recession. We now have one. Many will be on edge in the coming months to see whether there will be another.

It is impossible to predict where the economy will be in 3-4 months. Much of that is out of our hands. However, there are ways to prepare ourselves for both best-case scenario (positive GDP growth next quarter) or worst-case scenario (negative GDP next quarter). The first important step is to talk to your financial advisor and ask how your portfolio is prepared for a potential downturn. How would your portfolio hold up in case of a 2008 recession? How would it perform compared to the stock market in the case of the 1999 internet bubble? It is good to have a reference as to where your portfolio is and how much it could be affected if the economy takes a turn for the worse.

It is important to remember that this is only 1 quarter. Even with the negative GDP number that emerged this week, the first quarter did see an increase in consumer spending (up 2.7% after inflation) as well as solid 2.6% rise in sales. While it would be wise to ensure your portfolio is braced for a potential recession impact, that doesn’t mean one should jump off the investing ship just quite yet, especially as holding a cash position is less than advisable in an inflationary environment.

This news, while bad, does not quite mean the worst is on its way, but it is important as ever to ensure that your portfolio is prepared for that dreaded “worst”, this way, whether it arrives or not, you’re prepared to weather that storm once more.