After resisting for months, money managers finally are using the “r” word, but most think the recession will be shallow and short-lived.
“We've finally thrown in the tow-el,” said Brett Hammond, chief investment strategist for TIAA-CREF, New York. But the towel wasn't tossed very far, he said. “If you are looking at 1% growth vs. 1% negative growth, it isn't going to feel a whole lot different.”
Managers peg the beginning of the recession to late last year or early this year, but they won't know for sure without the benefit of hindsight. Technically, a recession is defined as two consecutive quarters of negative growth.
Paul Berlinguet, head of growth equity strategies for Bank of America's Columbia Management Advisors LLC, Boston, said it “feels like we're in a pretty mild recession” now. However, with policy-makers responding aggressively and non-financial companies showing flush balance sheets and low inventories, he doesn't expect inflation to spike or the recession to become bitter.
Some market veterans continue to believe the U.S. might not go negative. Robert C. Doll, vice chairman and global chief investment officer for equities at BlackRock Inc., New York, said the U.S. still might escape a recession. If not, it will prove to be a “pretty shallow” one, he said.
On the whole, bond managers tend to be more negative than stock managers on the economy's prospects — and none more so than at Pacific Investment Management Co., Newport Beach, Calif.
Mark Kiesel, executive vice president and portfolio manager on PIMCO's investment-grade corporate debt desk, said it's likely the U.S. will experience two to three years of a weak economy, driven by sagging consumer sentiment. Housing prices are down, stock prices are down, unemployment is up and energy prices are rising, he said.
Echoed Maxwell Bublitz, chief strategist at bond shop SCM Advisors LLC, San Francisco: “Everyone's looking for a V-shaped or U-shaped recovery, but I think it'll be an L-shape where we stay down for a while.”
Robert E. Turner, chairman and chief investment officer of Turner Investment Partners Inc., Berwyn, Pa, praised the Fed's move last week to extend $200 billion in credit to financial companies in exchange for illiquid mortgage securities.