Impact of recession on stock market 2023
Hii everyone so if you Google the word recession 2023, you
will find a lot of contradictory information
for example, Goldman Sachs is saying that there are ten reason there won’t
be a recession. On the flips side, banks like bank of America are saying that
recession is going to eat up the market in early 2023. Then people like Elon
Musk are giving their own commentary. A Bunch of other economists are giving their
own commentary. So what exactly is happing?
Because the confusion is happening even at the government
level. For example, Joe Biden is the
president of the US. He says that we are nowhere close to the recession, But on
the flip side, his central bank chairman is saying that we will enter into a
recession because of our fight against inflation. So there is a lot of
confusion that is happening at all levels.
So I thought that I will help you to understand this
complicated topic in very easy to understand language
Recession in 2023?
There are four specific points, That who exactly right about recession?
Because in India also commentary is that there is no recession that is
happening.
Second key point how
a recession is going to impact the stock market. so in case you’re investing
right now or if you plan to invest in 2023, it becomes an important point for
you to understand.
Third and a point which rarely very few people are
discussing how exactly are we going to come out of recession?
Fourth and finally I’m going to discuss how I am preparing
my portfolio to deal with this recession.
The US stock market or the total US market which is S&P 500 or Nasdaq, if you buy indices, they are at a very good level this not a buying selling recommendation, but I feel that the US market is at a very good level. Because you might have already seen that Nifty has already given a breakout it is trading at its all-time high almost but the US market has not done the same(Benefits from The Downfall of stock market?). It is very likely that US market too will trade at their all-time high so it is great time to build position in the US markets.
Are we in the recession?
Yes, we are already
in a recession. That happened in 2020 and there is another recession that is
happening but first and foremost, lets
quickly understand what is the meaning of
recession. So recession means a significant widespread, prolonged downtrend in
the economic activity.
Now, how do we measure economic activity? We generally tend to do it in terms of GDP, What type of GDP we usually do it inflation adjusted GDP, which is also called as real GDP. (Downturn period) the fact that if two quarter of GDP has shrunk, What type of GDP, real GDP if it has gone down for two quarters, then theoretically we are in a recession, check the data and this data can be easily goggled
Impact of recession on stock market
Stock market is forecasting indicator or a
leading indicator, so stock market is a leading indicator while economy is a
lagging indicator. there is a lot of pessimism in the economy right now, but
when you’re a stock market investor you need to think about the future. But is
this pessimism going to become worse with time or is it going to improve in the
next six to twelve months? And that is
how you will have to make your buying and selling decision today? So let me break this down and hopefully it
will make more sense.
Study of contrary commentary, so Bank of America says that next year the
stocks market could come down by 24% , Goldman Sachs says that ok softies, come out of recession? So there are two or three key things or terms
that you have used. You understand this, then you increase your probability of
making the money.
1.
The government were worried about deflation at
one point (deflation simply means when consumers and asset prices decreases
over time, it is general decrease in price) so therefore it means that if you
are holding your stocks for slightly longer perspective, good companies, then
you are going to make crazy amount of money.
2.
That is very easy to make money when interest
rates are getting cut. Right now what is happening interest rates are rising again?
The US interest rates are inching towards 4% which is rarely high and it is a
rising interest rates environments, so we are in an environments where
interest rates are going higher, higher
and higher and the might continue to go higher a little but once the interest
rate start to get cut, then you are going to make crazy amount of money.
Conclusion, now you’ll say that if you have a given a really complicated
macro commentary ok, recession in itself
is a very difficult subject to understand, therefore there is very much confusion
between recession is come or whatnot?
All economist are getting confused. I have related to the stock market
according to me this is what I’m doing, I’ve already made a lot of significant
purchase six, eight months ago. I’m booking
some profits, I’m converting some of my money in cash.
In this stage I’m cutting overvalued stocks for example, I
feel that banks FMCG sector has become slightly
heated, so I might bool 20,30% profits
in these segments and I might rotate the capital into undervalued segments.
According to me, that is an undervalued opportunity right
now, small cap and mid cap stocks are undervalued large cap blue chips are
saturated. So I will be exciting some of my position and booking partial
profits in some. But the important point to be noted is that I’m not exiting
the market.