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What is a “Rolling Recession,” and Are We in One?

What is a "Rolling Recession," and Are We in One? Fitzwilliams Financial

It is obvious that the economic situation following the coronavirus outbreak has been very erratic. Despite the fact that people have been discussing the possibility of a recession for some time now, we have not yet fully experienced one. Generally speaking, a recession is characterized by a continuous and widespread economic decline. [1] And although there have been major market downturns recently, there have also been major rallies.

Rolling Recession, the Definition

Instead of qualifying our current economic situation as a recession, experts have been using the term “rolling recession.” The term means that instead of a widespread decline in economic activity affecting the entire country, certain industries or regions experience a downturn while others continue to grow. [2]

To illustrate, if California’s tech and housing industries experience a slump while Florida’s energy sector sees a rise, then the two downturns and the upswing might cancel out when looking at the whole economy – this is a rolling recession. The slump in California’s housing market would lead to a decrease in overall economic activity, while the increase in the energy sector in Florida would aid in sustaining the overall economic growth of the nation.

Currently, certain economic indicators look strong: inflation is looking like it might slow down, and the Gross Domestic Product is doing better than expected. [3] But other areas have slowed down or are seeing downturns. Consumers are still feeling the effects of the sudden increase in inflation, and you may have noticed inflation making its way into your life. And industries such as housing and manufacturing are struggling.[4] This is why many experts are calling our current situation a rolling recession.

Rolling Recession, What it Means for You

Professionals advise caution when it comes to managing money in this economic climate (and any economic situation, for that matter). It is difficult to identify how a rolling recession may affect you, let alone see it before it transforms into a full-fledged recession. So, it is sensible to exercise restraint in spending and be prudent when it comes to saving until the economy stabilizes.[5]

Understanding the connection between a rolling recession and your investing and saving plan can be key to the financial health of your retirement. If you have questions about how the current state of the economy will affect your retirement, please reach out to us for a complimentary review of your finances.

When consumer confidence hits a multi-decade low, it is completely natural for you to feel a sense of hesitation about your hard-earned savings. If you are approaching retirement, seeing prices rise while trying to figure out the right time to adjust your portfolio can feel incredibly stressful. However, this low confidence might actually be introducing a healthy dose of critical thinking into the market right now. Instead of rushing into investments out of a fear of missing out, I am seeing people take their time to analyze their moves before they act.

This deliberate pace could be a vital asset as we prepare for what might be a historic three trillion dollar wave of tech IPOs. The names hitting the market are incredibly popular, and the media hype may make you feel like you need to change your entire strategy to get a piece of the action. But we must look closely at the underlying reality: many of these massive firms are not yet profitable. The typical corporate fundamentals simply are not there yet.

Because of this, I believe you should treat these speculative assets with extreme caution, much like money you would take to Vegas. If you want to participate, you might consider limiting that exposure to no more than five percent of a well-diversified portfolio. You should never dismantle a carefully crafted, long-term retirement plan just to follow a market trend. Furthermore, you must realize that extreme trading volumes during these public launches could cause your orders to execute at vastly different prices than you originally intended. It pays to be patient and let the dust settle.

If you have questions about how these shifting market dynamics might apply to your personal retirement plan, our team is always here to help.

Key Takeaways

  • A drop in consumer confidence may encourage a healthier investment environment by forcing individuals to rely on critical thinking instead of emotion.
  • An upcoming wave of massive technology IPOs might generate significant media hype, but these companies may lack current profitability and traditional business fundamentals.
  • Investors should avoid allocating more than five percent of a diversified portfolio to highly speculative, unproven market assets.
  • Heavy trading volume during a major public offering could cause investment orders to execute differently than an investor expects.

Fitzwilliams Wealth Management, Inc. is an SEC registered investment adviser. FWM and Fitzwilliams Financial are affiliated companies. This content is for informational purposes only and should not be construed as personalized investment advice. We do not provide tax or legal advice. Investing involves risk. Media appearances are for informational purposes only and do not constitute an endorsement.
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