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Preparing Your Portfolio for a Possible 2024 Recession: Insights from Guggenheim Investments
The Economic Outlook for 2024
Maria Giraldo of Guggenheim Investments suggests that the economy may not experience the anticipated soft landing in 2024. Contrary to many investors' expectations of interest rate cuts, Guggenheim foresees a moderate recession in the upcoming year. Giraldo, a managing director on Guggenheim's macroeconomic investment team, believes that rate cuts and significant corporate earnings growth for large-cap stocks cannot coexist. Instead, Guggenheim anticipates an economic downturn coupled with lower interest rates in 2024.
Signs of Market Stress
"We are actually seeing more cracks in the market, more stress in commercial real estate," Giraldo notes, highlighting the impact of higher interest rates and increased funding costs on banks. These observations underscore the need for investors to prepare their portfolios for potential economic turbulence.
Three Steps to Strengthen Your Portfolio
Giraldo outlines three steps investors can take to fortify their portfolios in anticipation of a downturn.
Balancing Stocks and Bonds
The first step involves achieving a solid balance between stocks and bonds. With equities rallying significantly this year, investors may find themselves with more equity exposure than desired. The S & P 500's 16% gain in 2023 presents an opportunity to rebalance portfolios, sell some winners, and enhance fixed income exposure.
Diversifying Beyond Treasurys
The second step is to diversify beyond Treasurys in the fixed-income portion of the portfolio while maintaining high quality. Giraldo recommends investment-grade corporates for additional yield and diversification, noting that these bonds are currently yielding 5.5% to 6%. Promising sectors include technology, industrials benefiting from government spending, and homebuilders. Investors can also leverage exchange-traded funds like the Vanguard Intermediate-Term Corporate Bond ETF (VCIT) and the Schwab 5-10 year Corporate Bond ETF (SCHI).
Adding Duration to Fixed Income Portfolio
The final step is to add duration to the fixed income portfolio. Duration measures a bond's price sensitivity to changes in interest rates, with longer-dated bonds typically having the greatest duration. Given Guggenheim's base case prediction of a Fed rate cut in 2024, Giraldo suggests adopting a more neutral to longer duration stance.
In conclusion, Giraldo's insights provide valuable guidance for investors looking to navigate the potentially rocky economic landscape of 2024.
Impact on New Businesses
The potential economic downturn in 2024, as predicted by Guggenheim Investments, could have significant implications for new businesses.
Financial Planning and Risk Management
New businesses must be proactive in their financial planning and risk management strategies. The anticipated recession underscores the importance of maintaining a balanced portfolio and diversifying investments. Businesses should consider adjusting their financial strategies to mitigate potential risks associated with an economic downturn.
Opportunities Amidst Challenges
While a recession may present challenges, it could also open up opportunities. For instance, lower interest rates could make it more affordable for businesses to borrow and invest. Additionally, the sectors highlighted by Giraldo, such as technology and industrials benefiting from government spending, could offer promising investment opportunities.
Long-Term Planning
The potential recession also highlights the importance of long-term planning. New businesses should consider adding duration to their fixed income portfolio, as suggested by Giraldo, to navigate potential changes in interest rates.
In conclusion, while the potential 2024 recession could pose challenges, proactive financial planning, risk management, and strategic investment could enable new businesses to navigate the economic landscape successfully.
Article First Published at: https://www.cnbc.com/2023/08/09/guggenheim-sees-moderate-2024-recession-3-steps-to-cushion-portfolios.html
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