{"id":62637,"date":"2023-09-18T17:22:18","date_gmt":"2023-09-18T21:22:18","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/why-coming-decades-may-bring-more-frequent-recessions-and-be-good-for-investors\/"},"modified":"2023-09-18T17:22:22","modified_gmt":"2023-09-18T21:22:22","slug":"why-coming-decades-may-bring-more-frequent-recessions-and-be-good-for-investors","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=62637","title":{"rendered":"Why coming decades may bring more frequent recessions \u2014 and be good for investors"},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0002515449\" role=\"document\">\n<p>The unique 40-year period from 1980 to 2020 characterized by mostly economic expansion in the U.S. will likely be replaced by a more regular pattern of boom-bust cycles and frequent recessions, according to analysts at Deutsche Bank<br \/>\n        DB,<br \/>\n        <bg-quote field=\"percentchange\" format=\"0,000.00%\" channel=\"\/zigman2\/quotes\/203042512\/composite\" class=\"negative\">-1.83%<\/bg-quote><span>.<\/span>\n      <\/p>\n<p>One reason is that higher inflation over the coming decades will limit central banks\u2019 room to maneuver in and outside the U.S., given the pressure to not sacrifice economic growth, the analysts wrote in a long-term asset return study released on Monday. Meanwhile, with debt-to-GDP levels now at multidecade highs, there is the question of whether U.S. deficits can continue being used by the government to extend the business cycle, considering that borrowing costs are becoming structurally higher. <\/p>\n<div class=\"paywall\">\n<p>Deutsche Bank\u2019s take includes one bright note \u2014 that frequent recessions tend to translate into stronger long-run growth \u2014 and comes as investors and traders have been debating if and when the U.S. might slip into what some describe as the most anticipated downturn ever. The U.S. has fallen into six recessions since January 1980, four of which lasted just two to eight months. As of this month, the world\u2019s largest economy has already met four of the so-called \u201ctriggers\u201d that Deutsche Bank says are needed over a 12-month period during a more prolonged run-up to a recession: Increasing inflation and an inverting yield curve, as well as rising short-term rates and oil prices.<\/p>\n<p>\u201cAll-in-all, we think the most likely future is one of more frequent recessions and more boom-bust cycles. Ultimately, the long expansions of the last 40 years are likely to prove rarer moving forward,\u201d said Jim Reid, head of global economics and thematic research, strategist Henry Allen, and analyst Galina Pozdnyakova. \u201cThat may seem undesirable on the face of it, but history tells us that recessions aren\u2019t necessarily bad for growth in the long term. Indeed, looking at our sample of G-7 countries, it is the U.S. that has had the most frequent recessions, but has stronger economic growth than its peers.\u201d<\/p>\n<p>Artificial intelligence has the potential to render some industries and jobs obsolete, and \u201cmove us away from the managed, zombie-type world of the last couple of decades,\u201d they wrote. \u201cWhether it\u2019s because the golden macro era of 1980-2020 is behind us or whether it\u2019s because AI will significantly disrupt the status quo, the most likely scenario is that the era of long business cycles is over.\u201d While this doesn\u2019t need to be negative for long-term economic performance, \u201cit will clearly maintain macro volatility into a system that was used to long periods of low volatility prior to the pandemic.\u201d<\/p>\n<p>In the U.S., recessions have made up a disproportionate amount of the 10%-plus selloffs historically seen in the S&amp;P 500 index. The median and average drawdown in these recessions is -21% and -26%, with 1932 or the height of the Great Depression producing the biggest selloff on record, according to Deutsche Bank.<\/p>\n<p>Nonetheless, the U.S. has maintained consistently better long-term equity performance than its G-7 peers given its more business-friendly financial system, according to Deutsche Bank\u2019s research. That is demonstrated in the data on nominal and real multiasset class returns going back more than 200 years, where possible, for numerous developed- and emerging-market economies.  <\/p>\n<div data-layout=\"inline\n                \" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetMediaIllustration\n            inline\n  article__inset\n          article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<p>          <!-- eventually when we know what this card will be we can change it and leave this one --><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        img-inline\n        article__inset__image\n      \" itemscope=\"\" itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<\/figure><\/div>\n<p>The Deutsche Bank team said its goal with the study wasn\u2019t to answer the question of whether the U.S. or Europe will fall into a recession soon. Rather, Reid, Allen and Pozdnyakova said they wanted to look at what history says about the frequency, depth, and duration of recessions \u2014along with what causes them.<\/p>\n<p>Like the multiasset team at Rotterdam-based asset manager Robeco, Deutsche Bank takes a long-term view of events and steers clear of making any outright recommendations for investors.<\/p>\n<p><strong>Read:<\/strong> Here\u2019s the \u2018triple power play\u2019 that may rule stock-market returns and other assets for next 5 years<\/p>\n<p>Frankfurt-based Deutsche Bank, often referred to as Wall Street\u2019s most pessimistic bank, was the first big-name bank to call a U.S. recession in April 2022. The firm proved to be prescient in September of that year when it saw an almost 5% fed-funds rate on the horizon, six months before it came to fruition.<\/p>\n<p>On Monday, <strong>all three major U.S. stock indexes<br \/>\n        SPX<\/p>\n<p>        DJIA<br \/>\n       <\/strong><br \/>\n        COMP<br \/>\n       finished barely higher after failing to hold on to earlier gains, as investors looked ahead to the Federal Reserve\u2019s policy announcement in two days. Meanwhile, the policy-sensitive 2-year Treasury yield<br \/>\n        BX:TMUBMUSD02Y<br \/>\n       ended at a six-month high of 5.062% on heightened inflation angst.<\/p>\n<p><strong>Read: <\/strong>Powell could still hammer U.S. stocks on Wednesday even if the Fed doesn\u2019t hike interest rates<\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/story\/why-coming-decades-may-bring-more-frequent-recessions-and-be-good-for-investors-2097f0b5?mod=markets\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The unique 40-year period from 1980 to 2020 characterized by mostly economic expansion in the U.S. will likely be replaced by a more regular pattern of boom-bust cycles and frequent recessions, according to analysts at Deutsche Bank DB, -1.83%. One reason is that higher inflation over the coming decades will limit central banks\u2019 room to [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":62638,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-62637","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Why coming decades may bring more frequent recessions \u2014 and be good for investors | iFintechWorld<\/title>\n<meta name=\"description\" content=\"The unique 40-year period from 1980 to 2020 characterized by mostly economic expansion in the U.S. will likely be replaced by a more regular pattern of\" \/>\n<meta name=\"robots\" content=\"index, follow, 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