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What Pre-IPO Investing Can Do For Your Portfolio During a Recession
With inflation at a 40-year high, GDP readings down for two consecutive quarters, and the stock market rising and falling like the tides, that all-too-familiar word has once again reared its ugly head: recession.
Experts (like those at the National Bureau of Economic Research [NBER]) are still in a heated debate about whether the U.S. economy is, in fact, officially in a recession. However, many investors are questioning whether it’s “too soon” for another recession to hit. After all, didn’t we just go through this during the early months of the pandemic?
Well, yes, and it is too soon—at least from a historical perspective. According to Anthony Saglimbene, global markets strategist for Ameriprise Financial, the average bear market lasts for about 418 days. And though the 2020 recession is now more than two years behind us, it wasn’t until July 2022—15 months later—that the U.S. economy recovered the 21 million jobs lost as a result.
Whether the NBER will declare an official recession is yet to be seen. But regardless of their call, we have entered a bear market; things are, at least, in a slump.
So, how long will this last? When can we expect things to start recovering (or, at least, stabilize to some extent)?
Consider the different types of recessions
First, it’s important to understand the different types of recessions. Rather than being sorted by cause or economic impact, recessions can be characterized by different “shapes” of their recovery according to their depth (their lowest lows) and their duration (how long it takes until things ultimately bounce back).
(Note that if this sounds eerily familiar, that’s because the national recovery from COVID-19 has often been discussed in terms of V- or U-shaped versus K-shaped recoveries.)
V-shaped and U-shaped recovery
A V-shaped economic recovery is relatively brief. As its shape suggests, this kind of recovery is characterized by a sharp decline (to the “bottom” of the V), followed by a steep incline toward the pre-recession level.
While similar, a U-shaped recovery features more gradual economic progress. More time is spent on the bottom, while the rebound is slower than in a V-shaped recovery.
W-shaped recovery
Perhaps the most troubling, a W-shaped recovery occurs when the economy enters a recession, enters a V-shaped recovery, then quickly dips into a secondary recession.
K-shaped recovery
A K-shaped recovery occurs when certain parts of the economy recover at different speeds or to different extents, causing divergent recovery paths that resemble the legs of the letter “K.” Certain sectors or socioeconomic demographics may bounce back quickly, while others may struggle with longer-lasting fallout as a result of the recession.
The average duration of a recession
There are several ways to assess the average duration of an American recession. The pandemic recession was, by far, the shortest in history, lasting just 3 months until April of 2020. Conversely, the Great Recession, which lasted 18 months from December 2007 to June 2009, was one of the longest .
Different experts provide varying gauges for predicting the average duration of a recession. According to Lindsey Bell, chief markets and money strategist for Ally, recessions last an average of 11 months.
Mark Zandi, chief economist at Moody’s Analytics, reported to CNBC that a typical post-World-War-II recession lasts roughly between six and 12 months. He noted that in a “garden variety recession,” unemployment can climb to 6%, and between 3 and 4 million jobs are typically lost. Both the stock market and national housing prices may fall between 5% and 10%.
Looking further back in time, from 1857 to the present day, the average recession has lasted for fewer than 17.5 months. In 1873, however, a staggering 65-month-long recession hit the market. This beat out even the Great Depression, which lasted for 43 months.
As Zandi’s numbers indicate, post-WWII recessions have been both shorter and less crippling. This is thanks, in part, to the Fed’s gradual improvements in managing the U.S.’s finances, as well as the creation of the FDIC.
Even shorter, less devastating recessions have led to national economic reform. The 9-month-long Savings and Loan Crisis, for instance, saw the passing of the Financial Institutions Reform, Recovery, and Enforcement Act. The dot-com crash, which lasted for about 8 months, led to expanded consumer tax credits and reduced income-tax rates.
The 2020 recession was perhaps the best proof that the duration of a recession doesn’t inherently reflect its overall economic impacts. As mentioned earlier, the pandemic-induced recession lasted a mere 3 months; however, its severity brought much of the American economy to its knees, leading to unemployment levels not seen since the Great Depression.
Recession-proof your portfolio
Ultimately, no recession lasts forever. And only time will tell whether we will, indeed, enter a recession—and, if so, what kind of recovery path it will follow. That you can’t control. You can, however, control how you invest during a recession.
Alternative investments are generally uncorrelated to the market and can potentially provide asset diversification during a recession. At HUDSONPOINT Capital, we specialize in alternative investment strategies. If you’d like to know more, reach out—let’s get on a call.
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The opinions expressed are those of HUDSONPOINT capital and not those of B. Riley Financial..
Please note that any investment involves risk including loss of principal. Some risks of investing directly or indirectly in real estate include declining real estate values, changing economic conditions and increasing interest rates.
This is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation of any products or services. Opinions are subject to change with market conditions. The views and strategies may not be suitable for all investors and are not intended to be relied on for legal or tax advice.
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