Is a 2022 Recession Coming and Should We Be Worried?

It’s been a crazy and volatile ride on the US stock markets in 2022 so far; and it’s only February. Facebook down 26%. Amazon up 15% on bad earnings. US National Debt is trillions! Inflation hit 6.7%. So what does 2022 have in store for us next? Is a 2022 recession coming?

One fact we might want to note is that a recession has followed every occasion inflation rose above 5%, except once in the last 50 years. Interesting…

What is a recession?

Two consecutive quarters (6 months) with negative growth.

How do we measure growth?

Growth is measured by Gross Domestic Product (GDP). Looking at the graph of inflation rates vs periods of recession it suggests we are almost guaranteed to enter a period of recession.

US Rate of Inflation 1972-2022. source: tradingeconomics.com

How worried should we be?

The good news is that the stock market has historically ended recessions higher than they started. So a recession could actually be a good time to keep gradually buying and then ride the recovery when it inevitably comes.

If we know the markets are about to fall why not sell now?

Unfortunately it’s not as simple as it seems. One reason is that once you’ve sold out your investments, when should you buy back? The answer is, ‘who knows’? Really, no-one knows. Your fears and emotions are unlikely to see you through to a profit.

Statistically, if you miss just a few of the best stock market days in a year, you’ll miss a lot of the overall gains. If you don’t want to have you brain permanently plugged into the market to catch reversals, and you don’t want to risk missing those up days, avoid selling on fear. Ride out the volatility.

Small and mid-Caps are under-valued

Keep in mind that small and mid-cap stocks that have been hit hard in the recent sell-offs, but will flip to their mid-range at some point. Consider taking the opportunity to pick up some bargains.

Keep dollar cost averaging?

If you don’t have the time or headspace to pick individual stocks, feel free to pick up units in ETFs like the VTI (Total US Stock-Market) or VOO (S&P 500 tracking ETF). The DCA train keeps chugging along.

Note- This article is not financial advice, and is presented for informational purposes only. Consult a qualified professional if you need advice.