This article is an adaptation from a webcast featuring Jurrien Timmer, Director, Global Macro on the recent market volatility related to the coronavirus. March 2020
Are there risks of a potential recession?
In the coming weeks we may see that word pop up ‐ “recession” ‐ but I believe it will be more of a technical recession. As demand falls, because people stay home or stop travelling, we may see a quarter or two of negative growth.
I would caution that investors tend to extrapolate the past. When we hear “recession,” we think of the financial crisis. For younger investors especially this is an issue, because we have only had a couple of recessions in the past 20 years, in 2001–2002 and in 2008. Both recessions resulted in negative market returns which is known as a bear market. But those were very unique periods.
If a technical recession happens, it is not a cause for distress, because the market can reprice itself ‐‐ as it is already doing ‐‐ and it can look past that down period. Look at 2016: that was not a recession, although there was a downward trend in earnings and a contraction in global trade. This could be a better comparison to current market conditions than the financial crisis in 2008.
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