Anatomy of a Recession Presentation
The Anatomy of a Recession: What to Look for and Where We're Headed
First Quarter 2021
Past performance is no guarantee of future
results. Financial term and index definitions are available in the appendix.
1
Probabilities vs. Possibilities
The Wall of Worry
Equity Valuations
Fed Policy Error
Civil Unrest
Trade Wars
North Korea Escalation
Inflation
COVID-19
Sovereign Debt Crisis
Depression
Dollar Strengthens
Corporate Leverage
China Over-Tightening
Populism
EM Problems Intensify
2
Panic Attacks
800
MSCI ACWI
700
600 500
Endgame Panic
Brent Bottoms at $27.88
Japan Goes NIRP
Trump Impeachment
Scare
Brexit
400 2016
WTI Bottoms
Rate Hike Scare
2017
Trade War Escalation
Short Volatility Unwind
N. Korea Crisis
Quitaly Fears
Tariffs Scheduled
for Last $300B of
Fed
Imports
Communication
Error
Trade War
Accelerates
U.S. Gov't Shutdown
2/10 Yield Curve Inversion
Trade War Escalates
China COVID-19 Shutdown
Potential Second Wave
Fiscal Cliff
Fears
Pandemic Goes Global
US Election Concerns
2018
2019
2020
"The definition of insanity is doing the same thing over and over again and expecting a different result." - Attributed to Albert Einstein
Data as of Dec. 31, 2020. Source: MSCI. Past performance is not a guarantee of future results. Investors cannot invest direct ly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges.
3
Effects of Panic Attacks on Average Investors
20 Years Annualized Returns (1999-2019)
12
10
9.9%
8
6
4
2
0 REITs
7.7%
5.6%
4.5%
4.0%
3.4%
2.9%
2.2%
Gold
U.S. Stock
Government Related Bonds
Investment Returns
International Equities
Homes
Average Investor
Source: Bloomberg, June 30, 2019. Average asset allocation investor return is based on an analysis by DALBAR, Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior. Indices shown are as follows: REITs are represented by the NAREIT Equity REIT Index, U.S. Stocks are represented by the S&P 500 Index, International Equities are represented by the MSCI EAFE Index, Government-Related Bonds are represented by the Bloomberg Barclays U.S. Aggregate Bond Index, Homes are represented by U.S. existing home sales median price, Gold is represented by the U.S. dollar spot price of one troy ounce, Inflation is represented by the Consumer Price Index. Indices are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict the performance of any investment. Past performance is no guarantee of future results.
Inflation
4
U.S. Recession Recovery Dashboard
? 9 variables have historically foreshadowed a durable recovery ? The overall signal suggests the economy has started a new economic expansion
Data as of Dec. 31, 2020. Source: FactSet, Bloomberg, Conference Board, Census Bureau, Federal Reserve, FRBPA, Chicago Fed, ISM, Dept. of Labor, Bloomberg/Barclays, AAII, Investors Intelligence, and Moody's.
5
S&P EPS Surprise Relative to Expectations (%) 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19 4Q19 2Q20
Historic Earnings Surprise
Earnings Beats in 2Q20 & 3Q20 Were Much Stronger than the Last Recovery
25% 20% 15% 10%
5% 0% -5%
Earnings have handily beat expectations and helped power the market's rally.
Data as of Sept. 30, 2020, latest available as of Dec. 31, 2020. Source: FactSet. Past performance is not a guarantee of future
results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges.
6
Retail Sales Suggest V-Shaped Recovery
U.S. Headline Retail Sales (Peak Month = 100)
110
COVID-19 Crisis
105
6 Months
Dot-Com Bubble 16 Months
Global Financial Crisis 34 Months
100
95
90
85
80
75 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Number of Months from Peak
2001
2008
2020
Strong stimulus measures have supported a robust recovery in consumer spending.
Data as of Nov. 30, 2020, latest available as of Dec. 31, 2020. Source: U.S. Census Bureau, FactSet. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses o r sales charges.
7
Winter is Coming
U.S. COVID-19 Cases and Deaths
250,000
15,000
200,000
12,000
U.S. New Cases
U.S. Daily Deaths
150,000
9,000
100,000
6,000
50,000
3,000
0
0
Mar. Mar. Mar. Apr. Apr. May May June June July July Aug. Aug. Sept. Sept. Oct. Oct. Nov. Nov. Dec. Dec. 1 16 31 14 30 15 30 14 29 14 29 13 28 12 27 12 27 11 26 11 26
U.S. New Cases - 7-Day Moving Average (LHS)
U.S. Daily Deaths - 7-Day Moving Average (RHS)
The virus remains a key concern for investors, particularly as the Northern Hemisphere enters colder months.
Better awareness and protocols have significantly reduced mortality rates, making full lockdowns less likely.
Data as of March 1 ? Dec. 31, 2020. Source: Our World in Data, European Centre for Disease Control (ECDC), Covid Tracking
Project. Past performance is not a guarantee of future results. Investors cannot invest directly in an index, and unmanaged index returns do not reflect any fees, expenses or sales charges.
8
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