Amy Xie Patrick of Pendal believes the economic stimulus in the U.S. has bought time to delay a recession, but won’t help to avoid one. She also shares her bond investment strategy….(read more)

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US Recession Is Inevitable: Insights from a Portfolio Manager

As a portfolio manager, I am constantly analyzing market trends and economic indicators to make informed investment decisions. Today, my assessment leads me to a concerning conclusion: a US recession is inevitable. While this prognosis might sound alarming, it is crucial to understand the underlying factors and potential implications.

First and foremost, let’s acknowledge the unprecedented economic growth the United States has experienced over the past decade. With a remarkable bull market, low unemployment rates, and steady GDP growth, it is natural for many to assume that this expansionary cycle will continue indefinitely. However, this assumption fails to consider the cyclical nature of economies and the effects of global interdependencies.

One of the primary causes for this impending recession is the ongoing trade war between the US and its major trading partners, most notably China. Tariffs and counter-tariffs have disrupted global supply chains, led to increased manufacturing costs, and reduced international trade volumes. As a result, export-oriented industries, such as manufacturing and agriculture, have suffered significantly. Lower exports translate into reduced revenues, job losses, and ultimately, a decline in economic growth.

Furthermore, the trade war has also contributed to increased uncertainty and unease in financial markets. Investors crave stability and predictability, but the ongoing dispute has intensified market volatility. This increased risk aversion among market participants has the potential to trigger a downward spiral. As investors sell stocks and switch to safer assets, stock prices plummet, eroding consumer and investor confidence and further dampening economic growth.

The overall decline in global economic growth is another crucial factor in the US recession equation. Many countries, including Germany and China, have already experienced a slowdown in their economic activities. The US economy, like many others, is intricately interlinked with the global economy; hence, any weakening in international growth will undoubtedly impact the domestic economy.

Additionally, the aging business cycle plays a significant role in signaling an impending recession. Economic expansions cannot last forever; they are inevitably followed by a contraction phase. The current expansionary cycle in the US has been long-lasting, exceeding the average duration of previous cycles. Therefore, it is only natural to expect a downturn in the near future, as economies need to reset and recalibrate before starting another growth phase.

So, what are the potential implications of a US recession? Firstly, job losses are likely to increase as companies focus on cost-cutting measures in response to reduced consumer spending and declining revenues. This, in turn, will adversely impact household incomes and further depress consumer sentiment. Moreover, weakened domestic demand could perpetuate a vicious cycle, leading to even more significant economic contraction.

Given this scenario, as a portfolio manager, I advocate for precautions and well-thought-out investment strategies. Diversification and risk management become crucial during times of economic uncertainty. By effectively allocating investments across various asset classes, regions, and sectors, one can mitigate potential losses resulting from a US recession.

In conclusion, the US recession is not a question of “if,” but rather “when.” The ongoing trade war, global economic slowdown, and the aging business cycle are all contributing to an inevitable economic downturn. To weather the storm, investors and individuals alike must be prepared, flexible, and adapt their investment strategies accordingly. By staying informed, diversifying portfolios, and maintaining a long-term perspective, we can navigate these challenging times and position ourselves for future opportunities.