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Recession or not - how to stay on track

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

It was only yesterday that a sharp rally in US government bonds set fresh records, as investors continue to look for safe-havens amid growing fears over the global economy and renewed trade tensions.

Recession or not - how to stay on track

The inflow prompted the yield on 30-year US government bonds to fall below 2% for the first time.

Those investors look like they may well have been ahead of the curve, after a new report today from ratings agency S&P highlights that the risk of a US recession in the next 12 months has grown to 30-35%, up from 25-30% previously.

Bloomberg data would suggest that’s showing in the bond curve, with the yield on the benchmark US 10-year Treasury note on track for its biggest decline since January 2015, after falling by 46 basis points already this month.

However, at the same time we also got news that US retail sales jumped in July; the most they have in four months, indicating that consumer spending actually remains robust.

Throw into the mix the Federal Reserve’s quarter point cut in interest rates last month, which the US central bank chair Jay Powell described as a “mid-cycle adjustment in policy” signalling that it should not be read as the start of a full-blown easing cycle; and with it multiple and possibly deep rate cuts.

And the latest in the US-China trade war that seems to have led to, an at least temporary, back-track from the Trump administration over its decision to impose a 10% tariff on a series of imported goods from China until December.

The question surely then becomes, whether fears over the health of the world’s biggest economy are actually founded. Or whether any recession that does eventuate is actually the product of that old market foe, negative sentiment.

We could ask the same sort of question over here.

On this side of the pond the retail sales figures also surprised. Modest it may be, but the fact that monthly retail sales rose 0.2% defied forecasts for a 0.2% fall. Even more surprising, perhaps, was that sales in department stores rose for the first time this year in July; up 1.6% and reversing their decline.

At the start of this week, a fall in GDP last seemed to strongly suggest we could already be in recession in the UK. But of course, recession is notoriously difficult to call out precisely.

We are only “officially” in recession if we have two consecutive quarters of negative growth, as it is widely defined. So we have to wait for the second and third readings yet, and it’s not unlikely that this first reading could well be modified. If the retail data is reflective of a wider, more positive consumer spending trend currently and going forwards, then that could very well be the case.

What is clear from all this is that things are still very uncertain. There’s no denying that. What is also clear is that trying to act on these facts and figures, and still make the right decision, is notoriously difficult for investors. So often the historic data, which these headline figures are based on, is out of date as soon as it is published, which means being reactive to it is very often the wrong approach.

So it’s a question of waiting and seeing, for now. And, most importantly, staying focused on your investment goals.

You can’t afford to put your five, or 10 year retirement plan on hold or you could stand to lose out. Time in the market is what counts and today’s blips and market gyrations can actually play into investors’ hands in a positive way. Especially if you play it right.

And this is where an experienced fund manager can step in and help steer your investment plans towards fruition. Their job is to spot opportunities, come what may.

A diversified approach also helps. Having a mix of asset across different parts of the world is one way to de-risk your investments. Never has it been so important NOT to put all your proverbial eggs in that one basket.

Our Select 50 list of preferred funds gives you access to a range of funds managed by a broad range of investment companies across diverse territories and asset classes; all of which are essential components of a recession-proof portfolio.

Fidelity’s Ayesha Akbar runs a potential ‘best of all worlds’ portfolio in the Select 50 Balanced Fund, taking her pick from the Select 50 list and adapting her selection as and when she needs to.

Ayesha explained how she is finding such opportunities in a recent interview.

More on the Select 50 Balanced Fund

Important information The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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