A Recession Doesn’t Guarantee Doom For Your Portfolio

On this morning’s Trey Ware Show, Karl discussed that there is one indicator flashing red in terms of a recession. But, Karl doesn’t believe a recession is around the corner. And, even if there is a recession, it doesn’t mean the stock market suffers.

Trey Ware:                         I’m going to spend a minute or two here with Karl Eggerss. We’ll talk about what the big business news is of the week. He’s, of course, with EggerssCapital.com, and so Karl, what is the big business news of this week?

Karl Eggerss:                      Well, the market got a little ruffled last week because there’s something weird going on with interest rates. Most of your listeners know that if they go to borrow money, they’re usually going to pay more if they lend it for a longer time than if they lend it for a shorter time and vice versa, right? If they’re doing a CD, they should get compensated at the bank to do a CD that’s, let’s say a five-year CD versus a six month CD. Well, what’s happened recently is those rates are basically all the same now, and that’s signaling potentially that there could be a recession coming in the next few months. That’s what the bears would say.

Karl Eggerss:                      I disagree with that, but that is what’s causing some market volatility lately, is that perhaps the economy’s starting to slow just enough to where investors are worried about it and the interest rates are telling you that. They’re telling you this story. And so that was the big news last week was that hey, we may have a recession on our hands in the next few months. And again, that is a symptom. That’s like you having a cough, Trey, and then saying, “You know what? You’re about to die.” No, you may just have a cough, right? It could just be a seasonal allergy, could be something else, and that’s what we’re seeing right now.

Karl Eggerss:                      So the interest rates, that’s what Wall Street’s all talking about is interest rates. The short-term rates are actually a little higher than the long-term rates, and that’s something that’s unusual, it’s happened several times before, but I also want to point out that if we do enter recession, which I don’t think we are, but if we do in the next six months or a year, that still doesn’t mean that the stock market performs any differently. There’s not a correlation between what the economy is doing and what the stock market’s doing. Those are two separate animals.

Karl Eggerss:                      People are trying to put all these puzzle pieces together and assuming, “Oh, well interest rates are doing this, so therefore the stock market must fall,” and we’re not seeing that right now. We’re seeing a little bit of volatility, but we’re not seeing the market fall apart here, and I don’t think we’re going into recession, either.

Trey Ware:                         All right. Karl Eggerss, EggerssCapital.com, and I do have that cough. It’s all this mold and stuff in the air. Thank you, Karl. Appreciate it very much.

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