In my 50-plus years of managing money—which began in the days of Carly Simon’s hits—recessions tended to be surprises. Now almost everyone expects one.
The Philadelphia Fed’s recession probability meter has reached an all-time high. A survey by The Conference Board shows that 98% of US CEOs expect an economic downturn within 12 to 18 months, while 99% expect the same for Europe. KPMG found that 63% of CEOs in Asia Pacific expect a recession. In Taiwan it is 9 out of 10. It is without a doubt the most and longest anticipated recession in modern history.
That’s where Carly Simon comes in. No stranger to life’s surprises, in her 1971 single “Anticipation,” she sang, “We can never know what the next few days are, but we’re thinking about them anyway.” That’s key because, as I noted in this Christmas Day column, forewarned is forearm. When you watch out, you prepare. In short – to make up a rhyme I would never accuse Carly of writing herself – to anticipate is to soften.
Talk about the recession sparked last spring with the war in Ukraine. Growth forecasts and CEO confidence plummeted. Two-quarters of the (barely) shrinking US GDP sounded the alarm, leading many to believe we were already in a recession. Now there are recession warnings on DEFCON 2. If you think CEOs aren’t preparing, you should take them all for idiots. (And if you don’t prepare, you might be the idiot – or “so vain” that you probably think this column isn’t “about you”).
More specifically, gloomy business leaders are ignoring growth efforts and cost cutting as if the recession is already here. There have been 364,000 layoffs worldwide since April. US job openings are 12% lower than in March. More than a third of CEOs in Asia Pacific are freezing hiring. Companies are quickly moving towards lean and mean.
In addition to headcount, the World Federation of Advertisers found that nearly a third of multinational companies slashed advertising budgets, with 75% “scrutinizing” spending plans. Businesses are straining operations — speeding up debt collection, cutting productivity-sapping meetings, even kiboshing free coffee.
This is not how companies historically acted before recessions. On the eve of the recession in the fourth quarter of 2007, the Business Roundtable’s CEO Economic Outlook Index ticked higher. Respondents expected rising or flattening capital expenditures and employment. Big Tech and telecom expansion plans made headlines well into 2008. The ensuing surprise exacerbated the pain of the recession.
Recessions squeeze out the excesses of previous expansions – indeed, that’s their raison d’être. But this time, companies have been getting more and more into it since the spring. How many wrings are left? Enough for a brutal recession and another bear market implosion? Unlikely. Widespread anticipation makes for mild downturns – or none at all.
A mild recession would be consistent with the 24.5% decline in 2022 through the bear market bottom in October – a cub by historical standards. And if we actually get around the recession, almost everyone will be shocked – and positive. Stocks move most on surprise – hence the upcoming bull market (smaller or larger, as I described Christmas Day).
Note that since good data began in 1925, 9 out of 10 U.S. bear markets tied to recessions have long ended. before the recession trough. An ounce of prevention is worth a pound of cure. Nearly a year of increasing corporate sobriety means a recession may not cut as hard as feared.
As Carly ended Anticipation, “These are the good old days.” Be optimistic.
Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time company New York Times bestselling author and regular columnist in 17 countries worldwide.