This article is original content written by Manchester, CT Financial Advisor Thomas Scanlon, CFP®, CPA
Some have called this the Waiting for Godot Recession. Waiting for Godot was a play that came out in the early 1950’s. It was voted the most significant English-language play of the 20th century. 1) The two main characters banter back and forth and have various encounters while waiting for Godot.
The recession we are still waiting for has not arrived? Just yet.
It has to be the most talked about and anticipated recession ever!
Recent History
The last recession was in the spring of 2020. This was, of course, due to the Pandemic. The recession was the shortest on record, just two months. The damage, however, was breathtaking. The economy contracted 5.1% in the first quarter and 31.2% in the second quarter. Unemployment rose to 14.7%, as 20.5 million jobs were lost.
Black Swans
- Russia
Recently Yevgeny Prigozhin, the leader of the Wagner Group, advanced a putsch against Vladimir Putin, the President of Russia. The very short-lived mutiny was stopped and it was negotiated that Prigozhin would leave Russia and go to Belarus. Russia ‘invaded’ Ukraine in late February 2022. What they thought would be a long weekend exercise is now approaching a year and a half. Many lives have been lost. Now Putin is dealing with a mutiny. Gosh knows how he handles this. Bizarrely enough, the two met several weeks after this event. This made both of them look even weaker.
2. China
Xi Jinping, President of the People’s Republic of China, has also been very busy. First he sent over the Chinese spy balloon. Actually, the Chinese claim it was a weather balloon that went off course. Roger that. What is disconcerting is US intelligence saying that China did not appear to garner any new insights. While this may be factually true, it tends to miss the larger point. Any new intelligence gathered or not, this really appears to be just another test from the Chinese. I’m a generous grader. I will give this response an I for incomplete.
Of course, we now have significantly more activity around Taiwan. None of this activity is good, however. This is, yet just another test from China. We will see how this one gets graded.
And the hits just keep on coming as the U.S. aims to curb Artificial Intelligence (AI) chips and access to cloud-computing services. This will hurt the mega cap technology companies (think NVIDIA (NVDA) here).
3. More Rising Interest Rates
To fight inflation, the Federal Reserve Board (The Fed) has raised interest rates for ten consecutive meetings ending in May 2023. This has brought their benchmark, the Fed Funds rate, up to between 5% and 5.25%. This is up from 0.05% in April 2020 when they cut rates in response to the Pandemic. 2) They took a ‘pause’ in the June 2023 meeting. Unlike the old Coca- Cola slogan, this is not going to be ‘The Pause that Refreshes.’ They have already telegraphed two more interest rate increases, likely this year.
Much of this traces back to The Great Recession of 2007-2009. Both the stock market and housing market crashed. Very hard. One of the government’s responses was to cut interest rates to near zero. Then they artificially held them near zero for over a decade.
4. Inflation
Inflation has been the reason the Fed has been so aggressive raising interest rates. Inflation peaked at 9.1% in June 2022. 3) Inflation is currently running at a little over 4%. Keep in mind the inflation rate does not include food or energy, as their prices are very volatile. I don’t know about you but I eat and drive a car. The Fed has a target for inflation of 2%.
This means we still have a long way to go.
5. Layoffs at Mega Technology Companies
Many large tech companies apparently over hired during the Pandemic. The worm has turned. Here are the companies with the largest workforce reductions (so far) in 2023: 4)
- Amazon (AMZN) 16,000
- Alphabet (GOOGL) 16,000
- Microsoft (MSFT) 10,000
- Meta (META) (Formerly Facebook) 10,000
Oh, and Amazon is not laying off any drivers or fulfillment center workers. These are all well paid white-collar jobs.
Meta’s 10,000 this year are in addition to the 11,000 job cuts near the end of 2022, which was about 25% of its workforce. These folks were paid well. The average salary for a Meta employee in California is $170,870. 5) I know living in California is expensive. It’s still a real nice income.
Oh, this doesn’t even include the 6,000 employees laid off at Twitter.com, formerly known as Twitter, a mere 80% of the workforce gone, thanks to Elon Musk, almost overnight. 6)
6. The Magnificent Seven (Stocks)
Sorry, not the movie. Although that was good, the original movie that is. Jaws 5 anyone? I’m referring to The Magnificent Seven Stocks. Here are their returns for the first six months of 2023:
- Alphabet 39%
- Amazon 44%
- Apple 37%
- Meta 134%
- Microsoft 38%
- NVIDA 112%
- Tesla 192%
The S&P 500 Index rose 16% in the first half of 2023. This was exclusively due to the Magnificent Seven Stocks. The average stock was up just 6% through the first half of the year.
Notice that four of the Magnificent Seven are also the leaders in workforce reductions this year listed above.
Do not misunderstand me. There are ALWAYS reasons not to invest. I am not suggesting that.
Not all is lost, however. Here are 6 Easy Ways to Navigate a Recession. In addition, remember you always need to be cautious however of A Bear, A Bear.
In the play, Godot never arrives. We will not be so fortunate.
The next recession will arrive.
We just don’t know when.
- En.wikipedia.org
- Statista.com
- CNBC.com
- News.crunchbase.com
Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. The forgoing is not a recommendation to buy or sell any individual security or any combination of securities. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.