Market Musings 191122:
The most expected recession, ever?

If everyone expects recession, where could we be surprised?


  • US, European and UK recession is the consensus for 2023.
  • If not all in the price (depth, length of recession), then a lot surely is already
  • Where could we be surprised?
  • Everyone believes in the superior profitability of US mega-cap tech. But Is tech leadership truly over?
  • Are we about to see the revenge of basic commodities?
  • Time to look at financial stocks again?

Everyone (and his dog) expects 2023 recession

Pretty much everyone expects the US, European and UK economies to shrink over the coming months as we move into a new year. The reasons are pretty obvious to everyone: sharply higher interest rates raising the cost of borrowing, higher prices for goods and services reflected in decade-high inflation rates, including a huge jump in energy costs for those in Europe.

Economic activity slowing almost everywhere in recent months


Source: International Monetary Fund

The key questions are then not whether we will see economic recession, but how bad will it get, and how long will it last?

To add insult to injury, those paying tax in the UK will now likely find themselves paying more tax from next year onwards, following the recent Autumn statement by the UK Chancellor of the Exchequer. After years of doling out financial help to households and businesses during the COVID-19 crisis, it is time to start paying the resultant bill…

UK companies and households to face the highest tax burden since 1945


Source: Institute for Fiscal Studies

Financial markets already reflect a lot of gloom…

As any investor who has not been living on Mars will doubtless realise, 2022 has most certainly not been a vintage year for listed investments. The combination of falling growth and sharply higher inflation rates has been a lethal cocktail, after a couple of very good years for the vast majority of investors.

Indeed, to put just how bad this year has been so far in some historical perspective, look at the chart below. Government bonds, normally a relatively safe and little volatile investment, have had a shocking year, while stocks have been poor as well.

US annual bond return the worst in over 230 years; US stocks also very poor


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