Alarm bells are ringing across the global economy right now. Rising interest rates, high inflation, and a chaotic commodities market are all signs of a pending global recession.
According to probability models run by Ned Davis Research, the chance of a global recession has increased to 98.1%.
The last time this model showed a recession chance this high was in 2020 and during the 2008 financial crisis.
“This indicates that the risk of a severe global recession is rising for some time in 2023,” said Ned Davis economists in a report.
Even before the Russian invasion of Ukraine, the Ned David Global Recession Probability Model had already climbed up to the high-risk zone of around 70%.
That number jumped to 90% shortly after the invasion began.
Is this the right time to buy?
Some value investors feel that now’s a good time to buy, especially since major indexes like the S&P 500 and the Dow Jones have recently fallen to all-time lows.
However, while indexes are re-entering bear market territory once again, Ned Davis economists warned that most assets haven’t priced in the possibility of a global meltdown yet.
The group warned that “based on historical norms, a moderate global slowdown has already been priced into most asset classes this year, but a severe global recession has not.”
At the same time, another index the group uses, the Ned Davis’ Sentix Economic Expectations Index, shows that investor sentiments are at their lowest level since 2009.
In other words, things are likely to get worse first before they get better.
Other experts agree
Countless other analysts and experts have echoed similar sentiments in recent weeks.
Veteran macro analyst Francis Hunt warned that a new “great depression” was likely sometime in 2023, warning that “Unlike the Great Depression of the 1930s, this (will be) a full-scale globalised depression.”
Seven out of ten economists surveyed by the World Economic Forum consider a global recession at least somewhat likely by now.
Billionaire investor Stanley Druckenmiller, founder of hedge fund Duquesne Capital, recently said that “Our central case is a hard landing by the end of 23. I will be stunned if we don’t have a recession in ’23.”
Even if a catastrophic recession somehow doesn’t hit the world, high inflation, soaring commodity costs, and plummeting currency values worldwide will ensure global economies will continue to struggle.
The real question isn’t whether a downturn is coming. It’s how long it will last.
Is a “dead decade” on the horizon?
While most investors are used to recessions that take a year or two to recover from, there’s also a chance this upcoming meltdown could be a much longer-lasting affair.
Over the past 100 years, the Dow Jones has seen multiple periods where stocks spent a decade or more recovering before seeing new growth.
The most recent example was a 15-year stretch between 1971 to 1987.
Charles R. Geisst, the author of “Wall Street: A History,” mentions that the main reasons why markets fell during the 1970s were due to war-related inflation, high-interest rates, and a high value of the dollar.
As it turns out, all of those things are happening right now in 2022.