In my 50-plus years of managing money—which started back when Carly Simon was cranking out hits—downturns have mostly been surprises. Now almost everyone expects one.
The Philadelphia Fed’s recession probability gauge has hit a record high. A survey by The Conference Board shows that 98% of US CEOs expect an economic downturn within 12 to 18 months, with 99% predicting the same for Europe. KPMG found that 63% of CEOs in Asia Pacific expect a recession. In Taiwan it is 9 out of 10. It is clearly the most and longest awaited recession in modern history.
This is where Carly Simon comes in. No stranger to life̵[ads1]7;s surprises, in her 1971 single “Anticipation,” she said, “We never know the days to come, but we think about them anyway.” That’s key because, as I noted in this Christmas Day column, the forewarning is forearmed. When you look after yourself, you prepare. In short—to coin a rhyme that I would never accuse Carly of writing herself—expectation is mitigating.
The recession talk gained momentum last spring with the Ukraine war. Growth forecasts and confidence in the CEO plunged. Two-quarters of (barely) shrinking US GDP raised alarms, leading many to believe we were already in recession. Now recession warnings are at DEFCON 2. If you think CEOs aren’t preparing, take them all for fools. (And if you don’t prepare, maybe you’re the idiot – or “so vain” that you probably think this column isn’t about you).
More specifically, gloomy business leaders nix growth attempts and cut costs as if recession were already here. There have been 364,000 global layoffs since April. The number of vacancies in the US has decreased by 12% from the peak in March. Over a third of CEOs in Asia-Pacific are freezing hiring. Companies lean towards lean and mean fast.
Beyond headcount, the World Federation of Advertisers found almost a third of multinationals were cutting advertising budgets, with 75% putting spending plans under “heavy scrutiny”. Companies are pushing operations—accelerating debt collection, scrapping productivity-sapping meetings, even kiboshing free coffee.
This is not how firms historically traded before recessions. On the eve of the recession in Q4 2007, the Business Roundtable’s CEO Economic Outlook Index ticked off higher. Respondents expected rising or flat capital expenditure and employment. Headlines touted Big Tech and telecom expansion plans well into 2008. The ensuing surprise compounded the pain of the downturn.
Recessions remove the excesses of past expansions—in fact, that’s their reason for being. But this time, companies have increasingly done so since the spring. How much twist is left? Enough for a brutal recession and another bear market implosion? Unlikely. Widespread expectation produces mild downturns – or none at all.
A mild recession would be consistent with 2022’s 24.5% decline through the October bear market bottom—young by historical standards. And if we actually bypass recession, almost everyone will be shocked – and positively. Stocks move mostly because of surprise — hence the bull market going forward (smaller or bigger, as I described on Christmas Day).
Note that since good data began in 1925, 9 out of 10 US bear markets linked to recessions ended long for the recession bottomed out. An ounce of prevention is worth a pound of cure. Nearly a year of increasing sobriety means any slowdown may not cut as much as feared.
As Carly finished Expectation, “These are the good old days.” Be bullish.
Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times best-selling author and regular columnist in 17 countries globally.