Key takeaways

  • New unemployment data shows unemployment benefits applications have increased for three weeks in a row to hit 198,000
  • The Fed wants to increase interest rates further, risking a recession this year
  • It’s not game over for your investment strategy – some smart tweaks now can see you through the ongoing uncertainty

Let’s face it: the ‘R’ word has been thrown around a lot in recent months. Experts seem to think a recession is an inevitability, but the usual data points on jobs and inflation are digging their heels into the ground.

It’s safe to say if a recession is on the way, it’s not playing by the usual rules. That can make it hard to predict what’s coming next. There’s also the matter of your portfolio and the best investment strategy during these uncertain times.

We’ve got some tips on staying afloat during the storm and how you can make the most of an uncertain situation.

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What’s the latest unemployment rate?

198,000: the number of Americans who applied for unemployment benefits last week, up 7,000 from the week before and hitting a three-week high. The number was slightly over what estimates predicted, which was 195,000.

Wall Street is watching these figures closely as the risk of a recession looms. The S&P 500 and Dow Jones Industrial Average opened higher on Thursday, rising 0.6% and 0.5% respectively.

Moderate rises in unemployment benefits applications could be cause for concern. But this is all about context. These unemployment figures are still at historically low levels, sitting at 3.6%. There are also 11 million open jobs in the US at the moment, so hiring is still strong.

Is a recession on the way?

Jobs and unemployment rates play a part in signaling whether a recession is on the horizon. A general rule of thumb is that the more people without jobs, the worse the economy looks.

But this time around, the data hasn’t been playing ball. That’s expected: we had a once-in-a-lifetime global pandemic situation where the rulebook was thrown out the window. We’re still recovering from the effects of repeated lockdowns and businesses bouncing back.

Alongside the head-scratching jobs data, inflation is still stubbornly persisting. The latest data from February came in at 6.4% inflation levels, down from a high of 9.1% last year but still well over the Fed’s 2% target.

Fed chair Jerome Powell has indicated further interest rate increases will be needed to tame the inflation beast – at the expense of jobs. “There will very likely be some softening in labor market conditions,” he said earlier this month.

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So – is the US facing a recession? The Fed seems to think it will happen – it predicted at the end of 2022 unemployment would increase by one percentage point, or 1.5 million jobs lost – but as the market remains hot, we could slowly ease into a recession rather than suffer a big crash.

The fundamentals of investing during an economic downturn

Diversification

No portfolio should have all its eggs in one basket, and that’s even more true during uncertain times. A well-balanced mix of assets like stocks, bonds and commodities that ride different waves at different times can work well to cushion against market volatility. Investing in different countries’ stock markets takes this a step further.

Just this year we’ve seen stocks like Nvidia increase a massive 80% while crypto, which suffered greatly in 2022, has also rallied. But those are two jazz-hands examples: consumer staples and utilities are a go-to investment for any recession-proof portfolio because they’re more resilient in economic slumps.

Focus on quality

A recession is a time to look a little more closely at those businesses you’re putting your money into. Companies with a healthy balance sheet and robust ratios are more likely to withstand any headwinds.

They might also have their own diversified revenue streams or a history of navigating difficult times for the company. Stocks that pay out consistent dividends for decades may not be the most exciting option, but consistency is king during a recession.

There’s also no harm in counting the brand itself as an advantage. Unfortunately, start-ups suffer in economic uncertainty, but household names are more likely to fend off competition and serve up steadier returns.

Long-term perspective

Timing the market and short-term market sentiments are dances with the devil. Instead, aim for a long-term approach to your investing strategy so your money can compound and grow over time. This mindset makes short-term volatility a lot easier to handle.

One way to help you keep on track might be to have a long-term goal in mind, like retirement or buying a home. This can remove the temptation to dump stock during a downturn, focus on the bigger picture, and better manage risk.

Minimize fees

Low-cost investment vehicles are your friend. Index funds, ETFs and mutual funds are all examples of inexpensive entry points that can produce significant cost savings over time. The little things like account maintenance and transaction fees can add up, too – perhaps it’s worth getting an account elsewhere with cheaper running costs.

You might also want to look at your trading strategy, which potentially incurs broker fees and capital gains. Keeping those diamond hands and trading less can keep costs down.

The bottom line

The latest unemployment benefits numbers are ticking upwards, but there’s still record-low unemployment and job creation aplenty. It’s a confusing picture at the moment and the jury’s out on whether the US will squeak past a recession or not.

While the experts argue about technical data and recessions, you’re wondering what it all means for your portfolio. Things look grim as the Fed battles inflation, but leveraging an intelligent strategy will serve well in the long run.

There’s no such thing as a bulletproof portfolio, especially in a recession, but you can have a helping hand in building long-term wealth. Q.ai’s Foundation Kits are topically themed, designed by analysts and powered by AI. Let an AI algorithm do the heavy lifting as it sifts through reams of data to bring you stocks, bonds and ETFs all balanced weekly.

But what if the uncertain economy has left you feeling risk-averse? Just switch on Portfolio Protection, available on all Foundation Kits. The AI algorithm rivals any hedge fund manager’s advanced hedging strategies, designed to reduce risk. Not all heroes wear capes.

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