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3World Bank Governor Malpass said on October 13 that the agency has lowered its global economic growth forecast for 2023 from about 3% forecast in June to 1.9%, and the global economy is approaching recession dangerously.
But today I'm going to say: Don't be afraid of recession, because recessions are usually accompanied by stock market rises in history. In 49 years: 9 recessions and 8 rises. We use the research targets of US stock and the economic trend of the United States as the research targets, and take the GDP 4 data and Dow Jones Industrial Index data respectively, and regard the GDP growth rate of 0 for at least two consecutive quarters as a recession.
Historically, since 1949, the United States has experienced a total of 9 consecutive negative growth cases of more than two consecutive quarters. Among them, there were 6 negative growths in three consecutive quarters, 2 negative growths in four consecutive quarters, and 1 negative growth in five consecutive quarters. In these nine recessions, there were ups and only during the 2008 financial crisis, the negative growth stage showed a decline of -10.49%. Why does this happen to
?
Because the stock market pays attention to expectations, usually when the recession really comes, most of this recession has been priced by the market, and the policies continuously issued by the government during the recession have become the driving force for market growth.
In addition, when the recession really forms, the market will usually move towards loosening, which is conducive to the rise in market valuation. Recession rise is not a law:
The four recession trends are different. Although the history of the past few decades tells us that investment recession is the right thing, reason tells us that rising in recession is not a law. History will repeat itself, but every time it is different. We can find that among these nine recessions, the most typical increase came from April-December 1949. This economic crisis, , originated in August 1948 and ended in October 1949.
1946, after the war, demand exploded, and European reconstruction demand also exploded. The supply in the United States was insufficient, and the inflation problem caused by the United States to continue to raise interest rates. Data shows that the US CPI index rose by 31% from July 1946 to August 1948, and the CPI remained above 8% year-on-year, with a peak of about 20%. Therefore, between 1946 and 1948, under the background of high inflation, interest rates rose, and US stocks fell sharply with a "valuation-killing" style. From 1947 to 1948, P/E fell by 53.5%.
1949, with the decline in inflation, it dropped rapidly from 9.9% in July 1948 to -2.9% in July 1949), and the United States responded to the recession. As the Federal Reserve lowered interest rates in , the year-on-year growth rate of the industrial production index continued to improve in the second half of 1949, and the economy gradually emerged from recession. After the Federal Reserve lowered interest rates in the second half of 1949, combined with tax cut expectations, the S&P 500 rose 32.6% from July 1949 to May 1950, and the rebound in valuation was the main driving force for the rise of US stocks during this period. S&P index PE valuation increased by 27.6% from 5.82 times at the end of June 1949 to 7.4 times at the end of May 1950.
Therefore, the reason why this time it went out of a trend is mainly because the Federal Reserve went loose in mid-1949, and its economic vitality was activated, which also drove the stock index to rise. However, the premise is that this crisis was triggered by structural economic contradictions after World War II, which can be said to be a happy trouble, and the global economy has sufficient action after World War II.
2)V-type rose
in 9 recessions, two of which were in 1974 and 2009.
This recession in 1974 is closely related to the oil crisis .
In October 1973, the fourth Middle East War of broke out. The Arab member states of the Organization of Petroleum Exporting Countries announced in December of that year that it had recovered the oil price right and increased the price of crude oil from US$3.011 per barrel to US$10.651.
At the same time, on August 15, 1971, US President Nixon announced a major news in the history of world finance with a half frustration and half excitement: the US dollar gave up the gold standard and stopped the US dollar from exchanging gold. The Fed has quickly easing to drive the economy and the US dollar has gradually depreciated. The federal funds rate fell from 5.8% in August 1971 to 3% in December, and M2 increased rapidly.Although Nixon implemented price controls in 1971, it limited inflation, but this was only the surface situation. In the second quarter of 1973, CPI was from the end of 1972.
Therefore, the oil crisis combined with excessive easing of the US dollar has caused the United States to fall into stagflation. In order to curb inflation, the Federal Reserve took over the big stick. The interest rate of federal funds
rose from around 5% in the early 1973 to more than 8% in the second quarter, and continued to climb to 11% in the third quarter. In April 1974, CPI inflation had exceeded 10%, and in June 1974, the federal funds rate reached a high of 13.3%. The impact of inflation and currency tightening have caused serious economic contraction, and the United States has officially entered a recession. After October 1974, inflation gradually approached the top, short-term interest rates began to drop sharply, and US stocks have since reached a bottom.
Therefore, the oil crisis combined with excessive easing of the US dollar has caused the United States to fall into stagflation. In order to curb inflation, the Federal Reserve took over the big stick. The federal funds rate rose from around 5% in early 1973 to more than 8% in the second quarter, and continued to climb to 11% in the third quarter. In April 1974, CPI inflation had exceeded 10%, and in June 1974, the federal funds rate reached a high of 13.3%. The impact of inflation and currency tightening have caused serious economic contraction, and the United States has officially entered a recession. After October 1974, inflation gradually approached the top, short-term interest rates began to drop sharply, and US stocks have since reached a bottom. The reason why the interest rate cut in
2008 cannot be effective is that on the one hand, the starting point is too high, and on the other hand, the decline in demand needs to be solved. So China launched a 4 trillion plan, and soon the U.S. stock market bottomed out.
Therefore, the requirements problem still needs to be solved by demand.
3) Oscillation upward
9 recessions, most of them are oscillation upward. Let’s talk about the downward trend in 2020. The main reason is that demand is suddenly suppressed by uncontrollable factors. Once this factor is cancelled, coupled with huge easing, demand will rise rapidly, and natural valuation and profits will drive stocks to rise. The situation in 1980 is also easier to understand, because 1980 was the beginning of quantitative easing in the United States. Since the second half of 1979, the second oil crisis of broke out, and oil prices have soared, seriously hitting the US economy, exacerbating the US foreign trade deficit, and deepening the trend of stagflation. In 1980, the U.S. inflation rate reached 13.4%, and interest rates have reached an all-time high. The valuation of
has been suppressed to be out of shape, and the downward risk is very limited. At this time, the rapid reduction of interest rates is enough to drive the sharp rise of US stocks
, but this rise did not last long.
This round in 1954 was relatively simple. The economic problems brought by The Korean War reached a balance in 1953 and gradually withdrew troops.
removed the adverse factors that hindered the US economy. The motivation for post-war recovery was still very strong, so the US stock market naturally came back.
Therefore, this volatile upward trend is mostly under the stimulus of huge quantitative easing, but this stimulus usually cannot last for too long, or after the war is over, the factors that hinder economic development are removed and the original economic order is restored. Moreover, it usually occurs after a longer period of valuation suppression.
4) oscillation downward
100 years, only after the great crisis in 1929, there was a continuous fluctuation and downward trend after the recession. The great crisis in 1929 is a bit special. It does not belong to the ordinary economic cycle , but an economic fluctuation in a large cycle, which is difficult to occur.
The fundamental reason for the outbreak of the crisis in 1929 is that the rapid development of technology has brought about an increase in productivity, but productivity is restricted by raw materials and the market. In line with what is said in " Wealth Theory ", division of labor increases efficiency, but division of labor is limited by market size, because the premise of division of labor is transaction. The contradiction between localization of production and globalization of raw materials cannot be resolved because the old colonial countries had the most resources, while the most productive emerging countries such as the United States were unable to control the global supply of raw materials.
productivity has exceeded the international economic order at that time (superstructure). Advanced productivity urgently demanded to break the backward production relations and form a global resource allocation, so the war broke out.Under the backward production relations, the United States has only productivity, but lacks external demand and cannot achieve free exchange of resources. The revolutionary changes such as
usually have some huge impacts, and cannot be solved by simply cutting interest rates. War is necessary. After all, the boss will not give way.
Can you invest in this recession?
This recession is a bit similar to the recession in 1974, with at least 4 points similar.
first, excessive easing before recession. After 1971, the US Blintton Woods system collapsed. In order to stimulate the economy, the Nixon government used excessive easing to stimulate the economy. In 2020, the United States also carried out excessive easing. In more than a year, the US M2 rose by about
35%. Excessive easing has led to a rapid increase in demand, and demand has also risen rapidly from 2020 to 2021, driving inflation to rise.
Second, structural inflation. In 1974, the oil crisis broke the global energy supply order, drove a sharp rise in global energy prices, and thus accelerated the inflation in the United States. This time, it was a global energy structural shortage caused by the Russian-Ukrainian conflict.
Third, the international environment of confrontation. In 1974, the Soviet Union and the United States were in a period of fierce confrontation. This time, the competition between China and the United States was fierce, and there were more frictions between the two sides.
fourth, fluctuating stock market. Before 1974, the US stock market has been fluctuating since 1962, and since 2018, the stock market has also fluctuated
, and the A shares are fluctuating even more. The volatility of the US stock market began to be fierce in the Cold War, and this volatility began in 2018 when the US
began to position China as a strategic competitor.
At present, will the United States implement strong quantitative easing to solve the problem like in 1980 and 2020? It should not be. First, because of the high inflation level, second, just tried it in 2020, and third, there are examples that have been repeated in 1980. The Fed has also repeatedly stated that history has proved that premature relaxation is not a good thing.
Of course, the current international landscape does not have the deep Great Recession of 1929.
Overall, this recession may be more like the recession in 1974.
Investment in this recession requires special attention to the data on interest rates, inflation and unemployment. At least one of them has to wait until the peak before it has begun to say that the investment has begun to decline.
At present, although the United States has expectations of recession, it has not yet seen negative growth. Although the United States' inflation has declined, the real test may be in this winter. Under the influence of the La Nina phenomenon, this winter may be colder, and the demand for energy may rise, which will further amplify the energy gap. At the same time, OPEC+ chose to reduce production, and inflation this winter may be the highest point of this round of inflation.
At present, the unemployment rates in Europe, the United States and the United States are still at historical lows, and they are quite low. Recession has not yet appeared. At this time, the Federal Reserve has no economic pressure and is unlikely to lower interest rates. Currently, the benchmark rate of is only 3.25%, which is at least 1 percentage point away from the target.
So, the first half of next year may be a period when interest rates peak.
Combined with my previous view on "The global economy enters a new normal of "stagflation-style recession", October may be the last investment window of this year", I still maintain my own view. The current market may not have bottomed out, but there will be a rebound in October, and the next round of decline may be where the bottom is.
