The odds of a recession are growing.
That’s the takeaway from a new survey of economists that Bloomberg recently conducted. The probability of a downturn in the next year is now 65%, up from 60% in February.
It feels like we’ve been saying this for months, but a few important events are now increasing the likelihood of trouble for the economy.
First, several bank closures including Silicon Valley Bank are inciting fears about the financial sector (although policymakers took steps to stem the contagion, are planning an overhaul of regulations, and may lean on big banks to cover the cost of the recent failures).
Then, the Federal Reserve continued with its planned interest rate hike in its March meeting, despite the banking drama. Plus, the looming return of federal student loan payments has some worried about the resulting impact to consumer spending. Perhaps no cohort will feel the restart quite like Gen Z, since those who graduated during the pandemic have never had to budget for it.
Layoffs are also increasing, with firms like Amazon, Accenture and McKinsey most recently announcing cuts. For those who took advantage of remote tech jobs to move to cheaper locales during the pandemic, a job loss can hit especially hard. My colleague Charlie Wells chronicled how transplants in so-called Zoom towns are grappling with a weakening labor market.
Other weird vibes: Investors are moving their cash out of banks and into money-market mutual funds, potentially a bad sign for the financial sector. Plus, Wall Street bonuses are down 26% this year — I know, I know, it’s hard to feel bad about someone still getting a six-figure bonus, but the drop is another sign the economy is weakening.
And what about your investment portfolio? At least for now, the stock market isn’t fazed. Money is flowing out of financial shares and into companies like megacap tech firms, with the Nasdaq 100 officially re-entering a bull market on Wednesday.
Still, it’s never easy to invest during times of trouble. Matt Miskin, co-chief investment strategist at John Hancock Investment Management, recommends positioning yourself more conservatively and being thoughtful with your cash. For instance, high-yield savings accounts and Treasuries are offering attractive rates right now. He’s also considering high-quality corporate bonds. We have more tips from experts here.
At the opposite end of the risk spectrum is a generation of retail traders playing with options that expire within a day. We took a deep dive into their high stakes world, which left me fascinated… but also very anxious. — Claire Ballentine
Written By: Claire Ballentine @Bloomberg.com
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