Page 9 - ISQ Outlook 2023

INVESTMENT STRATEGY QUARTERLY Capital
Bonds Growth

Equities
Liquidity
Income

Productivity

Labour

Rates

Recession Or Reorder: The Semantics

And Reality Of Economic Slowdowns

James Camp, CFA, Managing Director, Strategic Income, Eagle Asset Management*

Economic history is replete with semantics regarding
economic contractions. The Panic of the 1930s was The backdrop for better long-term outcomes may
euphemistically relabelled ‘the Great Depression’ by the be improving dramatically.
Hoover administration, economic slowdowns became
‘recessions’ during the Carter administration and came
full circle with the Global Financial ‘Crisis’ (also known as the inertia behind inflation has global central banks playing
the Great Recession) of 2008. The Biden administration catchup. However, market observers are treating this period as a
phenomenon within the normal business cycle—or in other
may be searching for yet another descriptor with an eco- words, ‘transitory.’
nomic and earnings slowdown on the horizon.
Consensus maintains that a probable U.S. (and global) recession
Perhaps ‘reorder’ might fit the bill? The global economic and will be ‘short and shallow’, certainly so in the context of the recent
policy landscape has undergone seismic shifts during the past past and inflation will return to its 2% long-run average. In short,
three years. Pandemics, like famine and war, have structural the post-COVID-19 economy will look like the pre-COVID economy.
after-effects that flow through society, the economy, and markets This view misses key structural changes likely to be long-lasting
long after the immediate impacts abate. Inflation, a biproduct of and influential to capital markets and investment returns. Longer-
turbo-charged fiscal and monetary policy responses, is the term inflation will likely remain much higher than 2%. U.S. CPI
market death knell of boundless post-financial crisis liquidity. has come in below estimates only three times in the past 21
Inflation has surged to the highest level in decades and remains months. Headline CPI began the year at 7.0% year-over-year (YoY)
the most regressive tax on economies. Everyone pays for higher and will finish the year persistently above 7.0% YoY once again, a
inflation and as a result, consumer spending power has fallen very similar picture to that across developed economies more
more than in any year since 1995. Policymakers’ misjudgement of generally, suggesting the Fed and other systemic global central

*An affiliate of Raymond James & Associates, Inc., and Raymond James Financial Services, Inc.

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