Recession Fears Overblown: Morningstar Investment Conference

Charles Paikert

19 May 2022

Fears of a major recession are greatly exaggerated, according to two prominent asset managers.

“Recessions are rare, but calling for a recession is a constant,” T Rowe Price Investment Management chief investment officer David Giroux said. He was a keynote speaker at the annual Morningstar Investment Conference in Chicago this week.

“We don’t see anything that could cause a massive recession,” said Giroux, who manages T Rowe’s Capital Appreciation Strategy. US bank reserves “are in really good shape” and T Rowe doesn’t see any “massive imbalances” to set off alarm bells, he reported.

The comments come at a time when rising inflation has prompted central banks to start turning down the spigots of monetary creation. With inflation at the highest annualized rates since the early 1980s, thoughts have turned to whether a rise in rates, and the disruptions caused by Covid-19, Russia’s invasion of Ukraine, and other forces, will cause a downturn. UBS, one of the world's largest wealth managers, has warned that a recession is likely, although said investors should prepare first for an inflationary period.

BlackRock managing director Kate Moore, also keynoting at Morningstar, concurred, citing “high frequency macro-economic data” gathered and analyzed by the world’s largest money manager.

Absent of a “significant exogenous event,” the US economy appears to be headed for “a slower growth trajectory, not a recession, over the next four quarters,” said Moore, who oversees thematic strategy for BlackRock.

Moore and Giroux called out hedge fund managers for spreading self-serving recessionary fears.

“There has been a rush to be the most bearish voice in the room,” said Moore said. Hedge funds with “challenged” performance results have “rushed to reverse their overall risk profile,” she asserted.

These funds are “standing up on soap boxes and yelling as loud as they can that the world is ending to support their short positions and trying to recoup some performance,” Moore said. “Does that sound cynical? It is cynical. Is it true? I think so.”

A hedge fund with net long exposure “is one of the great contrarian signs you can ever look at,” Giroux said, as the audience laughed. “If you want a signal when to buy, watch hedge funds and do the exact opposite of what they’re doing.”

While the market has priced in a recession for a number of stocks, T Rowe Price believes that even if there were a recession, it would be more likely to be “mild,” such as what occurred in the early 2000s.

“The fear of recession in stock prices can cause really attractive risk-reward opportunities in the marketplace,” Giroux said.