Since early last year, economists, market experts, and even corporate CEOs were predicting a recession for this year. Most of them said it would happen early in the year.¹ Managing investor expectations during recessions had become crucial, as the consensus view among experts suggested an imminent economic downturn. With inflation surging to 9% last summer and the Fed aggressively raising interest rates, it was an easy story to sell…and believe.

Fast forward to the present. The same experts that said we would already be in a recession are now pushing their recession forecasts to the end of the year and even into 2024. Because recessions are normal functions of capital markets, eventually we expect to get one. So long as forecasters keep pushing out the date, they won’t be wrong – just “early.” And that is the crux of financial forecasts: you have to be correct in prediction and timing.

Recessions Are Not Equal

Recessions come in different sizes and durations. Some are long and deep (Global Financial Crisis) and some are brief and shallow. And others, like the COVID-19 recession, were deep but very brief. In fact, most people don’t even realize we were in an official recession because it was the shortest recession in history and the recovery was swift.²

Many investors associate recessions with markets going down. Yes, that has happened and can happen. But markets have also gone up during recessions. Even if someone could accurately predict a recession, that doesn’t mean we would know how the markets will perform, which can influence an investor’s allocation.

A Greater Risk

While many people focus on the risk of a recession occurring, we think the greater risk is how investors respond to forecasts and expectations of a recession. After all, recessions don’t cause people to miss their financial targets. It’s investors’ reactions and investment decisions that influence their financial success (or failure). Peter Lynch said it best:

“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves.”

If you’re considering working with us here at Mosaic, we invite you to learn more about who we serve and how we help them. You can also contact us with any questions you have.

By Anthony C. Williams, CWS, ChFC, MRFC, CLU | Investment Advisor Representative | President & Founding Partner of Mosaic Financial Associates & Orthopaedist Advisory Group | Securities and advisory services offered through Cetera Advisors LLC, Member FINRA/SIPC, a broker/dealer and a Registered Investment Advisor.  Cetera is under separate ownership from any other named entity.

© The Behavioral Finance Network

1. https://www.cnbc.com/2022/12/23/why-everyone-thinks-a-recession-is-coming-in-2023.html
2. https://www.cnbc.com/2021/07/19/its-official-the-covid-recession-lasted-just-two-months-the-shortest-in-us-history.html

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