Top-talent CEOs drive some of the best-run companies in the world — Goldman Sachs, Amazon, Tesla, JPMorgan Chase, and Alphabet.
Every one of these leaders is now warning of a recession. I don’t say this lightly. It’s time for us to heed their call…
Sounding the Alarm
Five highly influential CEOs have announced similar economic outlooks for the U.S. in the coming year.
Goldman’s David Solomon told CNBC: “I think you have to expect that there’s more volatility on the horizon now. That doesn’t mean for sure that we have a really difficult economic scenario. But on the distribution of outcomes, there’s a good chance that we have a recession in the United States.”
He also gave investors a cryptic warning: “In an environment where inflation is more embedded and growth is slower, asset appreciation will be tougher.”
Amazon’s Jeff Bezos agreed with Solomon on Twitter:
Tesla’s Elon Musk has been warning of a recession for months.
In early August, CNBC reported that Musk believes we are “past peak inflation” but heading for a “relatively mild recession” that lasts for about 18 months.
Musk showed us why CEOs are worth listening to. He said that his analysis is based on the commodity prices that Tesla is being asked to pay for materials and goods required to make electric vehicles.
Alphabet’s Sundar Pichai told Google’s employees that the company needs to be careful with its spending to survive the “toughest macroeconomic conditions” over the past decade.
Google is facing a sharp slowdown in growth. Sales are expected to grow less than 10% this quarter. That’s down from over 40% a year ago.
Alphabet is getting ready by cutting costs. The company reported over $70 billion in profits over the past year. And yet the CEO thinks they need to follow Bezos’ advice and “batten down the hatches.”
JPMorgan Chase’s Jamie Dimon believes the recession will start by the middle of next year. He blames steeper interest rates, runaway inflation, the war in Ukraine, and the Federal Reserve’s quantitative tightening policy.
During a CNBC interview, he said: “These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now.”
Dimon was specific about what investors could face. The S&P 500 could drop another 20%. JPMorgan suspended its share buybacks because of concerns of a downturn. So, this CEO has been putting his money where his mouth is.
His advice is also instructive. He noted the second 20% decline can be more painful than the first. The 2008 bear market is a great example of that. Our current bear is starting to resemble a similar path.
Brace for More Drops Ahead
Our current bear has lasted about 200 trading days so far. It’s down a little over 20%. That’s similar to the first decline in 2008.
As you can see in the chart below, three sharp declines of more than 20% followed during that time.
This means we should expect more downside ahead. No point in beating around the bush. The recession is coming. That seems obvious to everyone except some politicians.
The good news is we can be ready for the turbulent drops ahead. This bear environment is brewing the right conditions for us to benefit from as short-term traders. It’s an exciting time to be an active options trader.
This week, I’ll be sharing how you can access my best bear market strategy in True Options Masters, so be sure to tune in.
Michael Carr, CMT, CFTeEditor, True Options Masters