US recession: when, for how long and what should investors do?

The problems in the US banking sector will undoubtedly affect all related areas of the economy and will most likely lead to a recession. This is the opinion of more and more economists both in our country and in the USA.

As investors, we are interested in getting answers to several questions: when will it start, how long will it last and what should we do about it? Let's try to answer them.

At the moment we see that all major economic indices and US companies are on the rise, despite the prime rate hike and global expectations of recession. The point is that the economy is largely cyclical and inertial, which means that the market will see the negative effect of a prime rate hike later, and this has always been the case.

According to the statistics based on the last 12 cycles, we can conclude that the market on average rises by 9.4% per year during periods of rising prime rates.

That is, despite the tightening of monetary policy, the market is growing and will continue to grow until the Fed starts to lower the rate (a separate study on this topic is published in the article ""). Thus, the recession will start when the Fed starts lowering the prime rate with a time lag of 2-4 months.

Следующий вопрос: какая это будет рецессия? Согласно данным fred.stlouisfed.org медианная продолжительность рецессий — 13 месяцев.

Hence, the following conclusion appears: as soon as the upward period is over, a recession will start in 2-4 months, which will last for about 13 months. The US stock market for 15-17 months will be of little interest to investors and it makes no sense to consider options to buy its assets before it falls by 25-30%.

The figure for this drop is also statistical, according to Bespoke Investment Group. Statistics since 1973 show that the NASDAQ falls an average of 35% from its peak when entering a bear market. The US broad market index tends to fall a little less, by 20-25%.

Thus we are left with another question that is of concern to the investor, what to do during a recession?

When things are bad in the stock market, investors tend to go into protective assets, the most interesting traditionally being gold. Let's consider the charts of gold and for 2000-2022.

The S&P 500 gained +205% during the period noted, while the S&P 500 gained +554%. Hence confirming our idea that while there is a recession, gold (or gold mining stocks) are the best investment option.

Within this short article, the investor has been given a concrete plan of action on what to do in the near term in the stock market based on the Fed's actions.