Where is the Recession Everyone Keeps Talking About? (Part One)

Korey Knepper |

The market has been a crazy place over the past four years. I am going to give you an idea of what I am seeing as an Investment Advisor Representative. These opinions on the US Stock Market are my own, and do not reflect Cetera Advisors LLC, or SDSmith Financial’s opinions. A lot of people want to talk about a recession when it comes to the Stock Market. Part of this is because fear sells, but another part is it seems we are due for one. On average, we see a recession every six and a half years or so, however, as we evolve economically we are seeing a larger spread between recessions, with the last one being the 2008 housing crisis. I believe that we have already seen our recession and are almost out of it, and one day we will look back at the Covid Recession, the strangest recession in modern US history.

2020: Covid hits the US, unemployment skyrockets from 4.4% in March to 14.7% in April. The S&P 500 drops from 3282 on February 1st to as low as 2191 on March 23rd, over a 33% drop. This market would completely recover by the end of August due to some wonderful technological advances to allow us to work and produce better, with less human interaction. Another reason was government intervention. Stimulus payment, higher unemployment, PPP Loans, and near zero interest rates all helped boost the struggling economy. In my opinion though, this didn’t stop a recession from covid, it just put off some of the side effects until down the road.

2021: At the end of 2020 we now have the vaccine which was seen as the savior of covid. This was supposed to boost our economy to new heights and bring us out of the covid recession risk, by getting rid of that pesky virus (spoiler, it didn’t). Now it was time to go back to work, however, with government programs still out there, including a new batch of PPP funding, it was a struggle for employers to find qualified candidates. This resulted in people getting new jobs with increased wages, a big win for middle class workers. However, 2022 would see those new wages not be everything they thought they would be.

2022: Inflation hits and hits hard, ramping up at the end of 2021, but having an average of 8% in 2022. This required more government intervention, with a steep rise in interest rates over the year. This did slow down inflation, as well as ending other covid programs. In 2022 we saw negative GDP growth in the Q1 and Q2, a common sign of a recession. We also saw the S&P 500 drop 18%. However, there was no large rise in unemployment because of this slowdown, which left economists to say there was not really a recession. I believe there was.

2023: Inflation is down, closing in on the normal rate, and US GDP data suggest that the worst is over. Now where do we go from here? My first thought is that you need to accept that there was a recession between 2022 and 2020. All the tell-tale signs of a recession happened over this three-year period (all bolded above), with the government intervention allowing for more of a slow pull of the band-aid, instead of just ripping it off. Today we currently see one specific industry that is still struggling with the lingering effects of Covid-19, and that is the financial sector. Due to two major factors, number one is the rising of interest rates has devalued their bonds that they had, which lowers their total assets. The other reason is from the "work from home" revolution. We have seen corporations struggle to get employees back into the office, and in turn this is hurting the commercial real estate industry, causing landlords to default of loans because they can’t fill the office space. I expect this trend to continue and expect to see very little growth for the finance industry, especially the regional banks, over the next 3 years. If you would like to discuss some of the areas, I am currently investing in, then look out for part two of this article (Published September 10th). If you don’t want to wait for that, set up a call with me, Korey Knepper, using the Calendly link below. Thanks for reading!