It seems somewhat obvious to state that when consumers invest during market peaks (the highest point between the end of an economic expansion and the start of a contraction in a business cycle), they are exposed to the greatest level of risk.

For example, between 2001 and 2006, millions of financial consumers invested in real estate. This period represented unprecedented housing market growth, followed by a two-year recession characterized by a 115% increase in seasonally adjusted unemployment, a 45% drop in housing prices (on average), and a 13.21% decrease in household net worth. Accordingly, a large percentage of investors who purchased homes between 2001 and 2006 subsequently experienced significant losses in household net worth after the housing market crashed. In turn, global financial markets dropped suddenly as investors worldwide panicked and sold securities in all asset classes.

Consumers face a similar situation in 2022, only this time the expansion is not confined to the housing markets. Leading indicators such as the S&P 500 suggest conflicting signals from economic data such as Treasury yield curves point to a recession in 2023. On the other hand, lagging indicators including retail sales and manufacturing gauges combined with a strong labor market suggest otherwise.

Between 1929 and 2008, the United States succumbed to three major financial crises, and at least fifteen different recessions lasting between eight and forty-three months. Put differently, over the past eighty years, the U.S. economy has been in a state of recession for fourteen of those years, or 17.5% of the time.

Given that the average life span in the U.S. is approximately eighty years, this means that the average U.S. citizen lives approximately one-fifth of his or her life under the economic hardships typically associated with a recession, such as high unemployment, inflation, and uncertainty about the safety of the money and investments that they entrust to financial institutions, many of which fail during severe financial crises. If a recession occurs in 2023, we can expect, at the very least a significant impact on labor markets.

Investors need to focus on three primary issues before making long-term decisions about their investment capital.

• the direction of the labor markets
• corporate earnings
• continued trends in leading indicators other than the SP500

Any changes in these indicators could impact many investors with a short-term horizon. For long-term investors, history has repeatedly demonstrated that financial markets rebound and exceed previous levels, so those who weather the current bear market may find opportunities to rebalance their portfolios, exit riskier positions, or invest additional capital in quality names.