The One Thing to Do When Facing a Recession

Oct 12, 2022

There One Thing to Do When Facing a Recession

The Federal Reserve Always Breaks Things...

It seems that almost everyone can agree that we are headed toward a recession. Recessions are almost always preceded by a Federal Reserve that raises interest rates too far which then “breaks things.”

It’s been said that a picture is worth a thousand words.

Here are 5 images that will help you prepare.

Image #1

(1973 - 1974)

From February 1972 through September 1973, the Federal Reserve raised the Fed Funds rate from 3.3% to 10.78%. Here’s what happened afterward to stocks and gold.

Source: Brentwood Research

Image #2

(1977 - 1978)

From March 1977 through December 1978, the Federal Reserve raised interest rates from 4.7% to 10%.

Source: Brentwood Research

Image #3

(1987)

From October 1986 through October 1987, the Federal Reserve raised interest rates from 5.85% to 7.3%.

Source: Brentwood Research

Image #4

(2001 - 2022)

From April 1999 through July 2000, the Federal Reserve raised interest rates from 4.75% to 6.5%.

Source: Brentwood Research

Image #5

(2008 - 2009)

From June 2004 through July 2006, the Federal Reserve raised interest rates from 1% to 5.25%.

Source: Brentwood Research

Conclusion

(Keeping It Simple)

Year to date, as the Federal Reserve has raised interest rates, the NASDAQ is down 34%, the S&P 500 is down 25%, the Dow Jones is down 20%, and gold prices are down 7.8%.

When the Fed is printing money and lowering interest rates, stocks go higher and gold typically underperforms. When they stop, historically, stocks go lower, and gold overperforms.

If you believe we are headed for a recession and have not yet taken action to protect your portfolio, ask yourself one question.

What are you waiting for?

References:

1. https://fred.stlouisfed.org/series/FEDFUNDS

2. https://www.google.com/search?q=nasdaq+index

3. https://www.google.com/search?q=s%26p+500

4. https://www.google.com/search?q=dow+jones

5. https://goldprice.org/