BlackRock, the world’s largest asset manager, is warning of an impending recession unlike any other. According to the company’s 2023 Global Outlook, central banks are “deliberately causing recessions by overtightening policy” in an effort to tame inflation. This is a significant departure from past recessions, where the Federal Reserve typically intervened to help stabilize the economy. However, BlackRock warns that this time around, central bankers won’t be coming to the rescue. This presents a major challenge for investors who have come to rely on the Fed to cushion the blow of economic downturns.
The potential impact on stock markets is also a concern. The S&P 500 fell 19.4% in 2022, but BlackRock believes that equity valuations “don’t yet reflect the damage ahead.” This suggests that the market could be in for even more volatility and declines in the months ahead.
So what should investors do to prepare for this recession? BlackRock suggests looking for unconventional ways to hedge against the downturn. One option could be investing in assets that have a low correlation to the stock market, such as real estate or bonds. Another strategy could be diversifying your portfolio by investing in emerging markets or other non-traditional assets.
It’s important to note that BlackRock’s predictions should be taken subjectively. The company has a vested interest in creating market uncertainty, as it makes money by managing other people’s investments. However, it is important to pay attention to their predictions, as they are one of the most influential players in the financial world.
In any case, it’s clear that the U.S. economy is facing some major challenges, and investors should be prepared for a recession that could be different from anything we’ve seen before. With central banks unlikely to intervene, it’s more important than ever to have a well-diversified portfolio and to be ready to adapt to changing market conditions.
