The Ideal Portfolio to Survive a Bear Market
Given how much the economy has changed in such a short period, what worked in the past may not work now.
The bears are in control of the financial markets.
Photographer: Jean-Francois Monier/AFP via Getty Images
The U.S. stock market is very likely in a bear market that anticipates a recession will start later this year. This means the time is now to shift portfolios from risk-on mode to risk-off before the losses get even worse. But what worked in the past when hedging against a bear market may not work now, given the ever-changing economic dynamics. It’s also important not to fall for some old myths.
In many ways, the economy is in uncharted waters. The pandemic spawned disruptions in global supply chains as frictions in the reopening of economies stoked inflation. The war in Ukraine has sired additional price pressures that have left the Federal Reserve well behind the curve in fighting inflation and with its credibility severely strained. So the central bank is playing catch-up, and is considering multiple increases in its federal funds policy rate of 50 or even 75 basis points. That and the recent bond markets yield-curve inversion, falling real wages as well as declining consumer confidence and real household spending, rising mortgage rates and excessive inventories almost guarantee a recession.