NEW YORK – Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, today provided the whitepaper ‘Forecasting the Next Recession' with the goal of providing investors with a well-informed view of the current business cycle so portfolio allocations can be adjusted accordingly.
The report introduces two new analytical tools developed by the firm’s Macroeconomic and Investment Research team that seek to provide real-time tracking of the timing of the next recession. Our Recession Dashboard follows six leading indicators that have exhibited consistent cyclical behavior ahead of a recession. The Recession Probability Model is an integrated model designed to predict the probability of a recession over six-month, 12-month, and 24-month horizons. These analytical tools point to a high probability of a recession starting in late 2019 to mid-2020.
“Predicting recessions well in advance is notoriously difficult,” said Guggenheim Investments Global CIO Scott Minerd. “Using history as a guide, however, we believe that is possible to get an early read on when the next recession will begin by analyzing the late-cycle behavior of several key economic and market indicators. Risk assets tend to perform well two years out from a recession, but investors should become increasingly defensive in the final year of an expansion.”
Among the potential investment implications cited in the 12-page report:
- In the last five comparable cycles, the S&P 500 has rallied an average of 16.2 percent in the penultimate year of the expansion, before falling 3.8 percent in the final 12 months.
- In credit markets, high yield spreads tend to stay flattish in the penultimate year of the expansion before widening in the final year, on average. Rising defaults and increasing credit and liquidity risk premiums drive a sharp pullback in the performance in high yield bonds before and during recessions.
- If history is a guide, then by the final year of the expansion (2019), we believe investors should turn defensive, positioning for widening credit spreads and falling equity valuations.
About Guggenheim Investments
Guggenheim Investments is the global asset management and investment advisory division of Guggenheim Partners, with $243 billion1 in assets across fixed income, equity, and alternative strategies. We focus on the return and risk needs of insurance companies, corporate and public pension funds, sovereign wealth funds, endowments and foundations, consultants, wealth managers, and high-net-worth investors. Our 275+ investment professionals perform rigorous research to understand market trends and identify undervalued opportunities in areas that are often complex and underfollowed. This approach to investment management has enabled us to deliver innovative strategies providing diversification and attractive long-term results.
1Guggenheim Investments total asset figure is as of 9.30.2017. The assets include $11.6bn of leverage for assets under management and $0.4bn for assets for which Guggenheim provides administrative services. Guggenheim Investments represents the following affiliated investment management businesses: Guggenheim Partners Investment Management, LLC, Security Investors, LLC, Guggenheim Funds Investment Advisors, LLC, Guggenheim Funds Distributors, LLC, Guggenheim Real Estate, LLC, GS GAMMA Advisors, LLC, Guggenheim Partners Europe Limited and Guggenheim Partners India Management.
Investing involves risk. In general, the value of fixed-income securities fall when interest rates rise. High-yield securities present more liquidity and credit risk than investment grade bonds and may be subject to greater volatility. Investments in bank loans securities involve special types of risks, including credit risk, interest rate risk, liquidity risk and prepayment risk.
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