Of late, the prospect of an economic slowdown has sparked fear among traders and economists alike.
This month the World Bank lowered its forecast for global economic growth. The Dow (^DJI) fell 810 points, or 2.4%, on Tuesday, in part on concerns of a downturn. And Deutsche Bank, in a recent statement, raised the possibility of a “great recession” as a result of Federal Reserve rate hikes and asset tapering.
In a new interview, Wall Street veteran and investment guru Sallie Krawcheck took those fears a step further, saying a recession is inevitable. While acknowledging that the timing and nature of the downturn remain uncertain, Krawcheck urged investors to diversify their holdings to weather tough economic times.
“Sure, there’s a recession coming,” says Krawcheck, co-founder and CEO of a women’s investment platform called Ellevest. “I do not know when. Nobody knows when. Inflation will eventually rise [and] down sometime.”
As the US grapples with the worst inflation in four decades, the Federal Reserve announced a series of aggressive rate hikes that could dampen rising costs but also slow economic growth.
Federal Reserve Chair Jerome Powell last Thursday expressed openness to a 50 basis point rate hike in May, citing the potential benefits of frontloading central bank monetary policy.
The start of restrictive monetary policy “will push the economy into a clear recession by the end of next year,” warned David Folkerts-Landau, Deutsche Bank’s head of research, in a statement on Tuesday.
Some observers have rejected recession fears. Canaccord strategist Tony Dwyer told CNBC last month that concerns about a recession based on an inversion in parts of the government bond yield curve were overdone.
Because “the market is wrong so often,” traders should diversify their portfolios to hedge against a range of outcomes, said Krawcheck, who formerly ran the wealth management divisions at Merrill Lynch and Citi (C).
The story goes on
“A diversified portfolio is what matters because the number of active managers consistently calling this stuff correct is a tiny single-digit percentage,” she says.
A television screen on the floor of the New York Stock Exchange, Wednesday, March 16, 2022, shows the Federal Reserve interest rate decision. (AP Photo/Richard Drew)
Krawcheck began her Wall Street career in the late 1980s as a junior analyst at Solomon Brothers. Since then, in more than three decades of her tenure in the financial industry, she has witnessed multiple recessions, most notably the Great Recession of 2008 when she held a front-row seat as a top wealth management executive at Citi.
Speaking to Yahoo Finance, Krawcheck said attempts to play the market in the short term often mislead investors.
“We tell our women, ‘Investing should be kind of boring,'” she says. “It shouldn’t just be about making calls.”
Continue reading:
Read the latest financial and business news from Yahoo Finance