How to recession proof your investment
Chairman J. Powell hinted that a September rate cut was ‘on the table’ after the Federal Reserve policy meeting on July 31. This would be the first-rate reduction since the Fed started raising rates in 2022 in effort to fight inflation.
Recessions have closely followed the fed previous four rate-cutting events from their peak( see chart below). Investors are rightly worried about another recession in the economy.
A recession is a sustained decline in economic activity. When an economy enters a recession, there are usually some shock events involved (Gulf War, Enron scandal, 9/11, subprime mortgage crisis or Covid-19). Thus far there have not been any significant shocks that could cause the economy to enter a recession by 2024. And even though the Sahm rule, peak interest rates and an inverted yield curve are all flashing red signs of recession, the economy is being supported by robust corporate earnings, strong GDP growth, consumer spending, and a labour market that is still historically strong even though it is cooling.
Key Take away:
- The US has experienced seven rate cutting cycles over the past 50 years
- On average, they lasted 26 months and decreased rated by 6.35 percentage points
- Observing data from last three rate cut cycle we have noticed defensive sector performs better than other sector
