In July, Syntrinsic released our Semiannual Sentiment, identifying key themes that we and many others anticipate will continue to be key drivers of short-term market movements. Slower growth. Weak Inflation. Trade uncertainty. Central Banks with limited capacity to stimulate the economy. These themes echoed concerns that we had expressed in January and informed the portfolio modifications we made through first quarter of 2019.
In August, for better and worse depending on the day, the markets have confirmed that these factors are indeed amongst the most important influencing investor sentiment. The question that seems to be on the minds of many—and certainly dominating the media—is simple: Are we headed for a recession? For some, the question arises due to yield curve inversion. For others, it’s because of the length of the economic recovery. Still others confuse a slowing economy (not recessionary) and a contracting economy (recessionary). And some simply pick up on the most negative of headlines, and a sprinkle of highly charged politics, mix in some economic anxiety and fear, and come to a conclusion that recession must be imminent.
The reality is that at some point, there will be a recession. A recession could be triggered by trade tensions, weak economic conditions in other parts of the world, or factors not yet obvious. The timeline of that recession could be next year or several years down the road. The point is that, yes, in a sense we are always headed for a recession.
The real question should be: If there is a recession, what, if anything, should we do about it? To that we would offer terribly boring advice. Start by confirming that your portfolio aligns with your long-term objectives. Be patient. Do not time the market. Keep your emotions in check and your politics in perspective. And if there is a recession, ride through it, see if there are opportunities to benefit from dislocations in the market or to harvest tax losses, come out the other side, participate fully in the recovery, and continue on.
For our part, we will continue to monitor macroeconomic conditions as well as investment manager suitability. And we will be patient, keep our emotions in check, focus on quality, and ride through the next recession that most certainly will happen sometime in the future.