In investing, as long as we are prepared for the worst case scenario, the upside will take care of itself. Hence, we are not really that concerned if a recession eventually plays out in 2023. And even if it does occur, if you ask us, our guess is that it would not be as bad as what we have seen during the Great Depression or the dot-com burst of the 1990s.
Recessions can be caused by many reasons, such as sudden economic shocks, excessive debt, asset bubbles or technological changes. The previous recessions were caused by major economic imbalances such as the housing bubble and the rapid overspeculation in U.S. equity valuations. Such imbalances are not as prevalent in today’s context. To add on, we already have seen significant drawdowns in the stock markets in 2022, so perhaps some of the effects of recession have been priced in as well.
In short, we do not need to over react even if a recession really comes. While recessions can sound scary and present some uncertainties, the stock market looks ahead and economic reports are reviews of the past.
Every recession eventually turns around and the stock market goes up over the long term. Remain invested if you already are and not be affected by the market noises which are not relevant to the long term earnings of the good companies you hold.
With this mindset, you will be able to navigate the markets joyfully in 2023.