Economic recessions can be catastrophic and nerve racking to get through. In the past, the United States endured a handful of extremely bad recessions that took decades to recover from. Although the markets are almost fully recovered after the 2008 Housing Market Crash, experts are predicting another recession within the next year. With each recession, the rich become richer, the poor get poorer, and the middle class shrinks.
One would think that because we have endured many recessions, we would know how to prevent them or at least be able to recover from them quickly. This does not happen though. One good thing about the United States experiencing recessions in the past is economists can predict them due to common telltale signs.
Signs for this Recession
For starters economists have been watching the Federal Reserve or the Fed. The Fed is the U.S central banking system that sets monetary policy to control the economy through interest rates. The Fed was established to alleviate financial crisis, such as a recession, through monetary policy. Typically, when the Fed increases raises interest rates that means the economy is doing well. Higher interest rates lead to more money in consumer pockets thus more money to spend in the economy. On the flip side, when there are high interest rates, the rates for borrowing skyrocket. A reason to slow down or halt the rise of interest rates is the lack of affordability for consumers meaning a slowdown in the economy. Last quarter, the Fed halted the raising of interest rates after a year of raising rates almost monthly.
The second sign is the trade war with China. Although it may not see like it has a direct impact on the recession, it has a huge impact on the stock market. Because many companies outsource their production to China but because tariffs have increased drastically, these companies are struggling and either have to increase their prices or find another country to outsource to which costs money. Increased prices when the economy is slowing down is like oil and water: they do not go. This results in lower company profits and decreasing stock prices. We have noticed a decease in the prices of stocks which can possibly indicate a crash.
Slower growth in Europe and China is also a huge red flag for an oncoming recession. Because the United States, China, and Europe all have intertwined economies, when one falls, there is risk for the others to fall as well.
Another area that has slowed down is the housing market; while prices increased drastically and the demand was through the roof, they have started to slow down. This cold be due to the lack of affordability in the housing market which indicates a slow down in the overall economy and consumer spending. The housing market is usually the best way to indicate a crash in the economy, so experts have been following that market.
Disclaimer: these are just predictions and will not always conclude in a recession. The U.S. could very well pull itself out of the downturn and not undergo a recession.
What does this mean for me?
With a slowing down economy right before a stock market crash, your investments are going to inevitably suffer. If you are close to retirement, you may want to talk to your advisor about moving some of your stocks to more secure, fixed investments. This strategy seeks to preserve your money as much as possible, so you do not lose a lot. If you are in the early stages of working, not close to retirement, or do not need the investment liquidated any time soon, your advisor might tell you it is OK to leave it be because the stock market will eventually go back up.
While this article’s intent is not to freak you out, its purpose is to educate the population on some potential risks to look out for when there is talk about a recession. It is also to educate the public on precautionary measures you can take so that your finances do not suffer I the economy does end up crashing. Strive to protect your assets as much as you can during this risky time.
If you had questions or concerns about your finances or assets and want to prepare for the potential recession, please reach out to Adam Hogue a CERTIFIED FINANCIAL PLANNER™ at 978-762-5511 or firstname.lastname@example.org.
Because stocks are very volatile and unpredictable, none of your assets are guaranteed protection but a financial advisor has the potential to help minimize the impact of the recession.