The Most Anticipated Recession
In the short run, the market is a voting machine – reflecting a voter-registration test that requires only money, not intelligence or emotional stability – but in the long-run, the market is a weighing machine.
– Warren Buffett, (referencing Benjamin Graham) in a 1993 Berkshire Hathaway letter to shareholders. Tweet
The above quote is most often used to reflect the idea that the stock market can do crazy things in the short-run – meme stonks can exist if enough people buy meme stonks – but in the long-run, fundamentals matter and stocks will eventually find their correct value.
However, I use the quote here to make another, similar, point. In the short term, the stock market’s valuation reflects the consensus view of what investors expect. Today that consensus view is that there will be a US recession in 2023.
The chart below from Blackrock makes the case that what we are seeing is possibly the most anticipated (and priced-in) recession in a generation.
Given this information, we believe the market has already adjusted accordingly. Investors waiting on the sidelines expecting an eventual recession to result in additional, large stock market declines like those seen in 2022, may be greatly disappointed.
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