The S&P 500 -vs- The US Economy

The S&P 500 -vs- The US Economy

June 08, 2023

As the summer of 2023 begins, market strategist and economists continue to handicap the likelihood of a US recession.  The consensus now seems to be that we will experience one starting somewhere in the second half of the year, the depth of which is a topic of debate.

Rich Wealth Management’s take on this subject can be summarized in three points:  (1) A recession of some variety (whether already in progress or not) is our base case assumption. (2) Recessions are a normal and unavoidable part of the business cycle. (3) The stock market’s movement related to any said recession usually precedes the recession, is negative, and, since 1937 has averaged -31.8% on a peak to trough basis*.

Given that the S&P 500 declined -27.5% from January 2022 to October 2022 (and the Nasdaq -36.3%), the real question is: “Has a recession already been priced in?”. I think the answer to this riddle will lie with the US consumer. On the positive side, household consumption and employment continue to be strong. In addition, according to a recent Fed study, US consumers are sitting on $500 billion in excess savings that could backstop consumer spending through the fourth quarter of 2023. **

The bottom line is that recessions are unique, unpredictable, and inevitable.  Investing in the stock market is a long-term endeavor. In the short run, it’s anyone’s guess as to where things land. The most important thing to manage is diversification and keeping your portfolio allocated appropriately for your goals and risk tolerance.

If you have any questions or concerns, please feel free to contact me directly.

*Past performance is no guarantee of future returns. Real returns can and will vary. The information contained herein is derived from sources we believe reliable but its accuracy is not guaranteed. **RBC Capital Markets Global Insight Weekly, May 25, 2023.