Maybe It Will Be a W-Shaped Recession | Chief Investment Officer

That recession everyone has been fretting over never seems to arrive. It could be that we are living in the calm spell before the next storm, says BCA Research. If so, that would mean a W-shaped recession, when the economy has been through one recession, and another is on the way.

This has happened before: The 1980 recession was followed by another in 1981 and 82. In those days, the catalyst was the spiraling ascent of interest rates as Paul Volcker’s Federal Reserve choked off the rampant inflation of the day. The Fed action linked both economic descents. Sound familiar?

“When we look back on recent events in a couple of years’ time, the 2022-2024 bear market will likely look W-shaped,” wrote Garry Evans, BCA’s chief global allocation strategist, and his team in a report.

Fast-forward to the current day. The very brief 2020 recession was due to pandemic lockdowns. High inflation began coming out of the lockdowns, as the economy struggled with shortages and pent-up consumer spending of government assistance and other funds.

Right now is “the calm before the storm,” according to the BCA report. The firm expects a recession to arrive around the end of this year. Its report pointed to all manner of signs betokening a weakening economy, ranging from the inverted yield curve to the Conference Board’s Leading Economic Index, which has been on the downswing since November 2022.

BCA’s report asks this trenchant question: “If the economy is heading for recession, why has the stock market rallied so hard, with global equities up 23% since last October?” The firm explained that since World War II, on average, stocks have peaked six months prior to the start of recession, and over the past four decades, only two months before.

The report noted that Fed tightening takes a while to have an effect on the economy. A “recession is likely to come only about two years after the first Fed rate hike and one year after the Fed Funds Rate went above neutral,” the point where it neither stimulates nor restricts economic growth. BCA added that “would place the start between November this year and March next year.”