Is Your Portfolio Ready For Ecomony Down Turn?

$NVIDIA(NVDA)$ $Intel(INTC)$ $Broadcom(AVGO)$ $Tesla Motors(TSLA)$

Hey There, You've likely noticed the recent market volatility. Are you preparing your investment portfolio for an economic downturn is essential to mitigate potential risks and maintain financial stability. Here are some warning signs. But did you know certain sectors are flashing warning signs similar to those seen before past recessions? Let's dive deep into what's happening and what implications does it have for the markets.

Transportation Sector: The Canary in the Coal Mine

In 1999, the transportation sector plummeted to the lowest levels in decades relative to the S&P 500.

This drop was a major economic warning signal in 1999. It suggested the U.S. economy was weakening substantiallyduring that period.

Indeed February 2000, the unemployment rate began to trend up, leading to the 2001 recession.

A similar pattern occurred in 1973, right before one of the most severe economic downturns in history.

The unemployment rate began to rise shortly after severe under performance of transportation stocks in 1973.

Fast forward to 2024: We've seen one of the worst performances of transportation stocks since 1999. The unemployment rate in the United States is already beginning to rise.

Key Point: This pattern has repeated several times over the last 60 years of data. Every time the transportation sector weakens significantly, a recession in the U.S. follows very shortly.

Consumer Stocks: Another Red Flag

Consumer stocks have been underperforming significantly over the last year.

What this means:

• It's a sign that U.S. consumers are weakening.

• A weakening consumer is less likely to spend, which slows the economy.

• This increases the odds of the economy heading into a recession.

We saw similar patterns before the 2020 recession and the 2008 financial crisis.

We're currently in the process of seeing this happen. But, how quickly is all of this going to unfold? In order to stay one step ahead of the game, make sure to access all our proprietary asset Models + Macro Newsletter here.

Glimmers of Hope: Not All Doom and Gloom

Despite the warning signs, some sectors are showing resilience, indicating that the runway has still not run out completely.

Financial Sector:

• Has been performing quite well over the last few months.

• When we zoom out and look back on the last year, it's remained quite resilient.

Heading into both the financial crisis and the 2020 recession, we saw the banking sector collapse. The current resilience is actually quite a good sign.

Home Building Sector:

• Has stayed incredibly strong over the last couple of years.

• Typically, heading into recessions, the home building sector declines.

Home building is notoriously famous for being a leading indicator of the economy. The fact that they've been strengthening here is not a recession signal.

What This Means: We have strong evidence that we're nearing a recession in the U.S., but there are still parts of the economy that have yet to break. This could mean we're in for another few months of market upside before we see a full-blown recession.

The Topping Process

The S&P 500 is showing volatility, but key moving averages are generally pointing upwards. This suggests there is still upside momentum because some parts of the economy are still holding up.

This price structure is different to the major prior tops of 2008 and 2000.

2008 Top:

• The price action was a lot weaker in the topping process.

• Moving averages (MAs) were pointing upwards in July 2007.

• As the economy transitioned into recession, these MAs started to curve downwards.

• The S&P 500 broke decisively below them.

2000 Top:

• MAs were pointing to the upside in July 1999, showing plenty of upside momentum.

• It wasn't until September 2000 that these MAs began to curl downwards.

• Price decisively broke below them, setting off the large bear market that followed.

Today: While many have turned bearish during this recent volatility, we could still have multiple months of a topping process before the market actually heads downwards.

The ISM PMI: A Key Economic Indicator

In order to assess the risks of a recession, it is important to look at the manufacturing sector.

The ISM manufacturing PMI is a survey on economic activity that provides useful insights into the state of the economy. But, how do you interpret it?

• High readings mean the economy is strong.

• Low readings mean the economy is contracting.

The last 2 readings showed a clear rollover in economic activity. This has many concerned that the economy is entering a recession.

Looking at all recessions going back to 1970, we see that all of them had the PMI go below 45. Currently, the ISM PMI is still at 47.2. This isn't very impressive growth, but it's definitely not recession territory yet.

In 1995, the PMI was at exactly the same level as we are today. Here’s what happened then:

• The S&P 500 was melting up during that period.

• The stock market continued to rise in 1996 and 1997.

• No recession materialized during those years.

Important Note: While this isn't the scenario we expect today, it demonstrates that the exact timing of a recession can greatly impact stock market performance.

How to Mitigate

Rebalance Your Portfolio: Regularly review and adjust your asset allocation to ensure it aligns with your financial goals and risk tolerance, especially after significant market movements. Rebalancing can involve selling over performing assets and buying under performing ones to maintain your desired allocation.

Increase Emergency Savings: Maintain an emergency fund covering three to six months of living expenses. This liquidity provides a safety net during economic uncertainties, reducing the need to liquidate investments at unfavorable times.

Focus on Defensive Stocks: Consider investing in sectors that tend to be more resilient during economic downturns, such as consumer staples and utilities. These industries often continue to perform well as they provide essential goods and services.

Assess Fixed-Income Investments: Evaluate your bond holdings for interest rate risk and credit quality. High-quality, investment-grade bonds can provide stability and income during market volatility.

Reduce High-Interest Debt paying down high-interest debt can improve your financial stability, reducing the burden of interest payments during challenging economic times.

Conclusion

Implementing these strategies can help strengthen your portfolio against potential economic downturns, promoting long-term financial health. you can enhance your portfolio's resilience against economic downturns and maintain a more secure financial position.

 @Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub