New U.S. economic data suggests that a recession is indeed coming, and investors should prepare for the downturn. The Conference Board revealed on Thursday that its Leading Economic Index for the U.S. fell by 1.2% in March. This marks the lowest point the index has been at since November 2020.
The Conference Board’s senior manager, business cycle indicators Justyna Zabinska-La Monica said in a statement that the board forecasts that economic weakness could intensify and become more widespread throughout the U.S. economy soon, “leading to a recession starting in mid-2023.”
Chris Watling, founder and CEO of the financial advisory firm Longview Economics, said on CNBC’s “Squawk Box Europe” on Friday that he found the board’s data “pretty compelling” and its “leading indicators were really brutally bad.”
Watling also noted that the normal timeline from the inversion of the Treasury yield curve (which first occurred in March 2022) to a recession is usually just a little over a year. “Every time you’ve had that in the U.S., you’ve had a recession,” he said. “So, I think it’s coming, it’s on its way. It’s just a timing issue.”
The Conference Board’s data, and Watling’s remarks, echo the sentiment of many industry observers forecasting an economic downtown. In a recessionary or volatile market, active management can not only help provide downside protection, but even find opportunities for alpha.
A recession can cause many securities to become undervalued. Active management can potentially identify these undervalued assets and invest in them at a discount, which can lead to potential outperformance when the market recovers.
Ultimately, actively managed ETFs can allow investors to adjust their portfolios faster and with greater flexibility than traditional mutual funds. They can also provide investors with greater diversification, risk management, and access to specialized expertise, which can be extremely valuable in a recessionary environment.
T. Rowe Price has been in the investing business for over 80 years and conducts field research firsthand with companies, utilizing risk management, and employing a bevy of experienced portfolio managers carrying an average of 22 years of experience.
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