Ashva Capital’s commentary for the month of May 2022, titled, “When Is The Recession Coming?”
The S&P 500 is now down (13.5%) year-to-date. Given the recent volatility we’ve experienced it feels like the market should be much lower. The question that most investors are now asking is whether the current weakness is a short-lived correction or the beginning of a bear market (popularly defined as a decline of 20% or greater).
Q1 2022 hedge fund letters, conferences and more
When Is The Recession Coming?
The answer to that question most likely depends on whether we experience a recession in 2022. Since 1980, there have been only five periods considered recessions.
- Early 1990s
- Early 2000s
- Great Recession
- Covid Crash
The longest running was the Great Recession, which ran from December 2007 to June 2009. The shortest recession on record was the most recent Covid crash and lasted only two months from February 2020 to April 2020.
I'm bringing up this data to highlight that recessions are relatively rare and in most scenarios relatively short-lived. Most importantly, the market being a forward-looking discounting mechanism will bottom well before the recession ends.
And god forbid if you wait for confirmation from NBER (National Bureau of Economic Research) that the recession is over before buying stocks, you'll have already missed a good portion of the market's rebound.
Thus, you shouldn't be asking yourself the question when the recession is coming because nobody can forecast the economy consistently. The market has already sold-off significantly and there is limited benefit in attempting to time the bottom of the market and selling out of your positions.
As investors we're not in the business of making short-term predictions. However, we are in the business of buying high-quality growth companies and the market is currently offering us discounted prices we may never see again.
Additionally, we're in a volatility bull market. Thus, we're seeing numerous opportunities to sell options premium with relatively low risk and high return potential.
