In my more than 50 years of money management — which began when Carly Simon was churning out hits — recessions have mostly been surprises. Now almost everyone expects one.
The Philadelphia Fed’s recession likelihood gauge hit an all-time high. A Conference Board survey shows that 98% of US CEOs expect an economic slowdown in the next 12 to 18 months, and 99% predict the same for Europe. KPMG found that 63% of Asia-Pacific CEOs expect a recession. In Taiwan, it’s 9 out of 10. This is certainly the most anticipated and long-awaited recession in modern history.
This is where Carly Simon comes in. Accustomed to life’s surprises, in her 1971 single “Anticipation” she sang, “We can never know the days to come, but we think about them anyway. This is key because, as I noted in this column on Christmas Day, forewarned is forewarned. When you are suspicious, you prepare. In short – to concoct a rhyme that I would never accuse Carly of writing herself – anticipation is mitigation.
Accustomed to life’s surprises, she sang in her 1971 single “Anticipation”: “We can never know the days to come, but we think about them anyway.”
Carly Simon performs on stage, New York, April 1978
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The recession chatter intensified last spring with the war in Ukraine. Growth forecasts and CEO confidence have plunged. Two-quarters of the (barely) contraction in US GDP sounded alarm bells, making many think we were already in a recession. Now the recession warnings are at DEFCON 2. If you think CEOs aren’t preparing, you must be fooling them all. (And if you’re not preparing, maybe you’re the idiot – or “so conceited” that you probably think this column isn’t “about you”).
Specifically, gloomy business leaders are forgoing growth efforts and cutting costs as if the recession is already here. There have been 364,000 layoffs globally since April. U.S. job postings are down 12% from the March peak. More than a third of Asia-Pacific CEOs are freezing their hiring. Companies are leaning towards lean and mean fast.
Beyond headcount, the World Federation of Advertisers found that almost a third of multinationals were cutting their advertising budgets, with 75% subjecting their spending plans to “scrutiny scrutiny”. Companies are compressing their operations, speeding up debt collection, eliminating meetings that undermine productivity, even refusing free coffee.
This is not how companies have always acted before downturns. On the eve of the recession in the fourth quarter of 2007, the Business Roundtable’s CEO Economic Outlook Index ticked upper. Respondents expected capital spending and employment to rise or stagnate. Headlines touted big tech and telecommunications expansion plans through 2008. The surprise that followed compounded the pain of the recession.
Recessions squeeze out the excesses of past expansions – in fact, that’s what they exist for. But this time, companies have been getting more and more into it since the spring. How much spin is left? Enough for a brutal recession and another bear market implosion? Unlikely. Widespread anticipation leads to slight slowdowns, if any.
A slight recession would be consistent with the 24.5% drop from 2022 to the October bear market low – a small one by historical standards. And if we do avoid recession, almost everyone will be shocked – and positively. Stocks move the most by surprise – hence the bull market ahead (smaller or bigger, as I detailed on Christmas Day).
Note that since the start of good data in 1925, 9 out of 10 US bear markets linked to recessions have ended long before the recession has bottomed out. An ounce of prevention is better than cure. Almost a year of growing corporate sobriety means any downturn may not be as bad as expected.
As Carly finished Anticipation, “It’s the good old days.” Be optimistic.
Ken Fisher is the founder and executive chairman of Fisher Investments, four times New York Times bestselling author and regular columnist in 17 countries around the world.