Whether the U.S. will enter a recession remains up for debate. In all fairness, some of us were arguing that the U.S. was entering a recession even back in June. The classical “two straight quarters of negative GDP growth defining a recession” was proven to be the case in late July. Now the question begs — if we didn’t really enter a recession yet, and if the recession is coming in 2023 — what the hell will this recession look like?
As a reminder, every recession is different and they do not have to be the Global Financial Crisis nor do they have to be like the first months of the COVID-19 shutdowns that were seen in 2020. If a recession is seen in 2023 it might not even have 5% unemployment? Did the third quarter GDP growth mean the economy is magically getting better?
Forecasts should matter to those of us who are into high-end collectibles as an alternative asset class. Many key coins have done well in 2022, as has fine art, fine wine, Golden Age key comic books, and vintage “trophy” sports cards and collectibles. Meanwhile, the up and down weekly performances of modern players and an ever-growing vast supply of new cards has only helped to keep the pressure on prices continuing to soften in modern sports cards. And many vintage card prices fell even as those rare trophy pieces continued to rise.
If we are going to compare alternative assets to traditional assets, let’s look at a top firm’s asset and economic picture for 2023. One well respected firm that evaluates the economy, the stock market and investments of all sorts is Goldman Sachs. In reality, Goldman Sachs caters almost exclusively (almost!) to larger financial institutions and to wealthy clients with multi-million dollar portfolios.
Goldman Sachs has released its 2023 Outlooks with its own expectations and views for the economy, stocks and bonds, unemployment and so on. According to its outlook, the U.S. will probably see a “soft landing” in 2023 and should narrowly avoid a recession. The issues helping are an expected fading of inflationary pressures aa unemployment rises slightly. The firm only sees a 35% probability of a U.S. recession in 2023. Please keep in mind that this is some 30 percentage points lower than the median forecast of a 65% chance (Wall Street Journal survey).
If the recession is going to be missed, that has to be great for stocks and asset prices… right? Maybe not.
According to the summary of the 2023 Outlooks:
The bear market in global stock markets is forecast to intensify before giving way to more hopeful signals later in the year… While valuations have declined, they started from a very high peak amid ultra-low interest rates. And though many equity markets around the globe are trading at low valuations, U.S. stocks aren’t — American equity valuations are still at levels consistent with the peak of the technology bubble in the late 1990s.
Goldman Sachs sees less stock market pain in 2023 versus 2022, but the firm currently only sees the S&P 500 posting flat returns. The firm sees no growth in earnings versus a decline of about 17% in 2022 earnings. Its team of strategists is also looking for the S&P 500 to fall about 9% over the next three months before rebounding when the Federal Reserve’s tightening cycle ends (expected to end that is) in May.
There are always many caveats to forecasts. In this report, Goldman Sachs is looking for lower holiday spending in 2022 versus 2021. A resilient U.S. is expected to offset China’s Covid restrictions and property slump, the Russia-Ukraine war, a shallow recession and brutally high energy prices in Europe. Goldman Sachs is now forecasting global growth of just 1.8% in 2023. Keep in mind that this currently assumes a rekindled growth in China as it “likely” reopens its economy after countless shutdowns from COVID cases.
Prepare for more rate hikes by the Fed!
Goldman Sachs’ team expects another 125 basis points of Fed rate hikes (vs. 100 basis points previously). The firm sees the Fed hiking rates by 50 basis points in December, followed by 25 basis point hikes in February, March and a new forecast of a 25 basis point hike in May. At the end of the day, the team is expecting the Fed Funds rate to top out at 5.00% to 5.25%. And for the gradual policy reversal, its economists do not expect the Fed to give the first rate cut until the second quarter of 2024.
The MSCI All Country World Index of global equities has fallen roughly 19% in 2022. Goldman Sachs’ strategists forecast more volatility and declines during this bear market before reaching a low later in 2023.
And for collectibles vs. the real economy…
What does this all mean for collectibles after a year where a 1952 Topps Mickey Mantle card and a Michael Jordan game-used jersey both topped the $10 million mark for the first time ever in each category? Some records are likely to continue to be broken. Honus Wagner, Ty Cobb, Babe Ruth and many other cards just never seem to fall in value. But…
Let’s take a long list of companies that have announced layoffs in 2022. These include Alphabet, Facebook (or Meta, whatever), Microsoft, Amazon, Lyft, Stripe, Salesforce.com, Redfin, Zillow, Coinbase, Robinhood, HP, Intel, Carvana, Paramount, Century Aluminum, and many more. And do we even need to talk about the crypto bloodbath of 2022?
According to an August 18, 2022 release from The Conference Board, many workers already felt at that time that the recession had begun. They were already seeing layoffs but by and large felt their own jobs were safe. That report said:
Amid debate about whether the US is in a recession, a new survey reveals 41 percent of workers believe we are… 36 percent of survey respondents say their company has already begun to restrict hiring to crucial roles, and 13 percent say layoffs have been conducted. Workers aren’t worried, however, with 80 percent feeling secure in their jobs. In fact, workers are more worried about a declining stock market than the possibility of losing their job.