September 2020
Chart of the Month
Global Recession Probability Model
Overview
- Numerous indicators around the globe are flashing signs that the COVID-19 induced global recession has already ended. The above Global Recession Probability Model we utilize, which illustrated high recession risk all summer long, has literally plummeted to its lowest point since 2013!
- Our August Chart of the Month provides a glimpse of some of the powerful forces that have helped avert disaster. In short, we repeat that “don’t fight the fed” remains as a strong force to consider when balancing the weight of evidence supporting all assessments of Strengths, Weaknesses, Opportunities and Threats (SWOT).
- Since the COVID-19 pandemic crisis is far from over, we take this positive news in stride. Renewed outbreaks, increased governmental controls and/or structural damage to the job market can all negatively impact these same indicators in the weeks and months ahead.
- The influence of U.S. elections remains as a wild card in the months ahead. Our October 2020 Chart of the Month illustrates the typical trend of the 4-year presidential cycle in combination (equal weighted) with the 1-year seasonal cycle and 10-year decennial cycle. Accordingly, we remain neutral equity weight and have employed factor-tilt weights toward U.S. stocks (over international), large cap (over small cap) and a core/growth tilt (over value).
- The U-shaped recovery we have believed to be the most likely (compared to a V-, W-, Square-Root- or dreaded L-shaped recovery) seems to be the most likely scenario forward. Great efforts are in place to bring the economy back to full employment and many humbling difficulties and challenges lie ahead.
- This all said, the accelerated level of creative destruction – a force we have spoken about and written about for quite some time – makes for an interesting period ahead requiring disciplined evidence-based investing and strict emotional fortitude.
- Clients are reminded to keep balance sheets and cash flows strong (including refinancing any personal/business debts at this time), maintain quality core equity and core fixed income holdings within portfolios (all Janiczek portfolios maintain this stance) and to adjust satellite holdings to coincide with weight of the evidence conditions (all Janiczek portfolios have been tweaked numerous times in 2018, 2019, and 2020 to this end).
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