With the stock market at all time highs in the longest bull market in history, one question has been coming up more and more lately: “Are we due for a recession?” And the simple answer is “yes, yes we are”. But, the situation is far more complicated than that.

Let’s start with what a recession is. The National Bureau of Economic Research (NBER) defines a recession as: “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales”**. A more quantitative (and less wordy) definition is “two quarters of negative GDP growth”. GDP, or Gross Domestic Product, is the total value of goods and services produced in a country.

The business cycle is made up of four components: a period of expansion, which leads to a peak, then a period of contraction, which leads to a trough. It is these periods of contraction that are generally considered recessions. What’s important to realize is that every complete business cycle contains a recession. Another way to put this is that every peak is followed by a contraction. Every time, without exception.

Now, this may sound very simple and obvious, like how every summer is followed by fall, but it is just as true. To be fair, the big difference is timing. We know when fall is here, but not so much with recessions. The point is that recessions are as natural a part of the business cycle as expansions. And this is a good thing. We couldn’t have the great times of expansion without the contractions.

In a free market society, recessions have to happen. Because the economy is dictated by the open market, supply will expand to meet growing demand. However, the system is not perfect, so at some point, supply will surpass demand and cause businesses to slow expenditures. Among other things, this will include laying people off. This will slow demand even more, and so on and so on. This will go on until we hit a trough and the economy starts to expand again.

So, when is this recession going to happen? Unfortunately, that is unknowable. The first read on second quarter, 2019 GDP came in at 2.1%^, so at least we know a recession didn’t start last quarter. But, much like predicting what the stock market will do by the end of the year, predicting recessions is a fool’s errand. Many were forecasting a recession and a market downturn in 2011 when the S&P 500 had doubled off of its Great Recession lows. Then again in 2014 when the S&P 500 had tripled off its lows, and crossed the 2,000 point level. Today (7/26/2019), we sit north of 3,000 on the S&P 500 and over 27,000 on the Dow. Imagine the investor who left the market in 2014.

The good news is that we don’t really need to know how the economy or the markets will act. Yes, it would be great, but these things cannot be known. What is important is investing in a portfolio that is appropriate for your situation: your goals, your risk tolerance, your investment horizon, etc. These are the things that we do know. And, you’ll notice there is no mention of markets or the economy. So, talk with your Financial Advisor, review your portfolio, and make sure you’re on track to meet your financial goals.

** https://www.nber.org/cycles/jan08bcdc_memo.html

^ https://www.bea.gov/data/gdp/gross-domestic-product

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Gavin Chinn, CFS* Financial Advisor

Check the background of this investment professional on FINRA’s BrokerCheck.

An Investment Advisor registered through CUSO Financial Services, L.P., Gavin has 22 years of experience as an advisor in the Puget Sound area.

“I believe every client is unique and deserving of a personalized financial plan that will help them reach their individual financial goals. Before I make any recommendations, I like to get to know my clients. By asking the right questions, and developing an honest, trusting relationship I can really get a sense of what’s going to work best for them.”

Gavin graduated from the University of Washington with a BA in Business Administration and started his financial career with US Bank in the Investment Department. Prior to joining Verity in 2006, he spent eight years with Piper Jaffray.

So what is Gavin’s vision for his dream retirement?

“My dream retirement would be absolutely worry free: financially, emotionally, and in every aspect of life. My finances would be in order so expenses for travel, luxuries, and gifts for the kids, grandkids, and great-grandkids would be taken care of. My kids would be financially sound, so I would be confident in their prosperity. This would give me the freedom to travel and play and do whatever it is I want to do.”

When Gavin’s not working, he enjoys spending time with friends and family, watching Husky football, and taking weekend trips around the Northwest.

Gavin is registered to transact securities business in the states of WA, OR, CA, AZ, FL, HI, ID, IL, MN, NM, NY and VA.

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Verity Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

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