Do markets already factor in the coming recession?

[amberjcbs]

When you see lots of articles such as https://www.forbes.com/advisor/au/personal-finance/will-australia-go-into-recession/ for Australia or https://economictimes.indiatimes.co...at-2023-will-be-ugly/articleshow/96056822.cms saying a high likelihood of a recession/bad economy in 2023, is this something that's already priced in to the various market indices? You can also see it in google trends e.g. https://trends.google.com/trends/explore?date=all&geo=AU&q=recession. Put another way, if a bad year is coming, is it a good strategy to sell and then come back next year? Or has everyone already thought of that and that's why markets are down?

 

[samz1992]

@amberjcbs For every article that says we're going into a recession theres an equal number of articles saying we won't i.e https://www.reuters.com/markets/aus...global-economic-dangers-treasurer-2022-10-11/. The problem with google and other sites is the more you look at articles that say a recession is/isn't coming the more they feed you similar articles until it becomes obvious to anyone with half a brain that recession is/isn't coming...

Im intelligent enough to know im prob in the 50th percentile and not clever enough to be able to time the market. So I figure, be like Bob and just keep buying, it could be right or it could be wrong but trying to time the markets high and low points is for people with groovier brains than me.

 

[amberjcbs]

@samz1992 I suppose an objective measure/proxy of the ratio of good news/bad news stories would be the consumer confidence index (which, in Australia is approaching its lowest value in 30 years https://tradingeconomics.com/australia/consumer-confidence). Consumer confidence is a 12-month predictor of consumption (https://www.thebalancemoney.com/what-is-a-consumer-sentiment-index-5214314#:~:text=Consumer%20confidence%20is%20a%20leading,rapidly%20based%20on%20news%20events.)). But I guess the essence of my question is if that expected reduced consumption is already priced in. Sounds like "who knows".

 

[resjudicata]

@amberjcbs No, it doesn’t sound like the answer is “who knows” at all. What it sounds like is that you are yet another bear in sheep’s clothing framing a question to suit your already decided narrative.

As someone has already said, the answer to your question is broadly, markets are a leading indicator.

 

[evanskii]

@amberjcbs In a lot of those articles you can replace 2023 with any year. Doesn't mean shit. Australia has technically avoided recession. Technically is the key here. It's same as unemployment. The way we measure recession is based on past 2 quarters data. By 2023 it means we are already in recession. Ignore these articles unless you are short seller

 

[pnwgirl]

@evanskii Ya Can’t have a recession
if you change the definition
taps temple twice

 

[flyenig]

@amberjcbs In the US earnings are likely to decline 20% in 2023 and this is not yet reflected in the price of SPY.

https://imgur.com/Y7Y5qzB

Also XJO and SPY trade in unison, which means right now XJO is extremely overvalued.

https://imgur.com/LDQhwsI

Right now equity markets present excellent opportunities to short.

 

[nurseir]

@amberjcbs Broadly, yes.

Markets are a lead indicator of the economy. You buy shares if you think the company will be worth more in the future; if you think it will be worth less then you sell. When a lot of people think the future will be worse, more people sell and the markets drop.

Now, this is hypersimplistic because there are other things that can move a market and other strategies at play, but it’s a useful heuristic.

Markets go down when people expect the economy to be worse soon. Markets go up when people expect things to be better - which is why markets can rise DURING a recession!

Of course, it’s all speculation. And plenty of people don’t think we have a recession looming, so while the markets are factoring in a future recession the uncertainty about if, when, and how bad means they won’t perfectly reflect what the economy actually does.