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What are the Best Investment Strategies During a Recession? | Podcast

What are the Best Investment Strategies During a Recession? | Podcast

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Talking points on this podcast:

  • What’s the probability of a recession in the US right now?
  • Applying an optimal investment strategy during recession
  • How to make sense of USD and its safe haven status

This time on Trading Global Markets Decoded, our host Martin Essex is joined by DailyFX analyst and equities specialist Peter Hanks. Peter has performed extensive research on how to invest during a recession, bringing expert insight into its probability in the US, recession investment strategy, and how currencies and other assets are likely to fare in a recessionary climate.

You can listen to this podcast by clicking on the YouTube link above or by using one of the alternative platforms listed below.

What is the probability of recession in the US?

The podcast begins with speculation on the probability of recession in the US. Although notoriously difficult to nail down, Peter puts the 2020 chance in the 25-30% range. “Some of the smartest minds have tried [to predict], but there are so many factors involved, it’s very hard to [identify] the day, the month and the reason. However there are some things that can lend hints.”

And what are those factors? The first is the US yield curve inversion in the middle of 2019. “In the past that was a major predictor of a recession, and financial news media and analysts were trying to call the top [of the market].

“We’ve come out of the woods a bit and yield curves are back to normal, but there are other worrying signs like contraction in manufacturing and services data. Then you bring in more fluid issues like trade wars that are constantly pushing down on global growth, and you can definitely make an argument that we’re in uncertain territory.”

Applying a recession investment strategy

The safest way to apply a recession investment strategy is diversification, Peter says. He says that one possibility is an all-stock portfolio, with some aggressive stocks and some safe haven stocks. “[However] that may come back to bite you if a 2007-magnitude recession strikes, as that caused a broad downturn in equity valuations. So to prepare for an event like that you would want to look at commodities and safe haven currencies; safe haven assets that have an inverse correlation to the stock market.”

Martin asks: Would you recommend a movement from stocks into bonds if the global economy looks to be slowing? “Yes, I would,” Peter says. “Unless you’re out on the front line, and your investment strategy is picking singular stocks, which I don’t think is the case for most people, a gradual rotation out of those more vulnerable equities into bonds is a very safe way to go.

“There’s a reason that the 60-40 portfolio (60% stocks, 40% bonds) has been around for so long; it’s a very sturdy allocation, and during those times investing in bonds and treasury notes is a sound strategy.”

  • For more on the definition of recession and its impact on the markets, see our What is a Recession? article.
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