Recession Indicators: September 2024
Don't bet explicitly on a recession. Prepare for how you will allocate your portfolio if one occurs
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We discuss this topic on last week’s Power Hour. For those who don’t know, we record these live on YouTube every Wednesday at 1:30 PM EST. Follow our show on YouTube, Spotify, or Apple Podcasts to never miss an episode.
Recession indicators seem to be increasing. I even heard it discussed on the latest Focused Compounding podcast. They are super sharp and I respect what they have to say.
Here is what I had to say earlier this year about current calls for a recession:
Does that mean a recession won’t happen in the next twelve months? No. It is possible one might occur. I would never take a hard stance that a recession will not occur within any 2 - 3 year period. There are just too many variables at play.
But don’t let anyone who was banging the drum for a recession back in 2022 tell you they “called it” if one occurs in late 2024 or 2025.
I still stand by this take. I have zero respect for the opinion of people who have been bearish every quarter for the last 15 years (yes, those people exist).
But we are seeing some signs that the economy weakened in late summer of 2024.
For example, Ally Financial said that delinquencies for its consumer automotive loans rose by 10 - 20 basis points above their expectations in July and August. While not a huge trend, this is concerning for the health of consumer spending. Car loans are some of the first things people pay off each month. If you can’t pay back your car loan,
Or, perhaps there were just some bad loans made by the automotive lenders in 2022:
(link is a TikTok Investors Twitter video of an absurd auto loan customer)
The data is very conflicting:
I would not take a hard stance either way.
But you know what I AM doing? Researching stocks I would want to own if they tanked during a recession. You need to prepare before a recession and/or stock market crash occurs. The opportunities can come and go quickly with a lot of emotions at play.
My list includes the likes of Ally Financial. A stock that remains on the watchlist but has now moved up my ranking of potential additions after dropping 20% on this recent update.
We have talked about them on the podcast before:
I would recommend looking at the TSOH Investment Research Service for premium research on Ally Financial:
Other quality stocks I have on my “would buy during a recession” watchlist include Airbnb, Adyen, American Express, and Visa. All are inflation-protected and high-quality network effects (Adyen I guess isn’t too much of a network effect but has a different moat).
If we get into a deflationary recession and these stocks tank, I would love to fade Mr. Market. Not sure if it will happen anytime soon, but I will be keeping tabs on the four companies in case they get cheap.
I think any reader is in the same position as me. You have a bunch of stocks you’d love to own if they get cheaper. I mean, the S&P 500 is about to hit a P/E of 30. There ain’t much out there. A deflationary recession is an obvious catalyst for that changing.
Make preparations now — not after stocks have fallen 30% — in case it does.
-Brett
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Thanks for the shoutout guys!