U. S. stocks fell out of the historical pit and investors are preparing for a recession.

The recent sell-off in US stocks has intensified for months, with painful trading spreading beyond technology and speculative stocks, hitting even consumer stocks, which are relatively unaffected by the turmoil.Major indexes of US stocks hover near historic lows:

S & P fell for seven weeks, the longest losing streak since March 2001

The Dow fell for eight weeks, the longest since May 1923.

FANG8, the technology leader, has fallen all week, losing $2 trillion in market value from record highs and losing $220 billion this week.

Major consumer goods sectors, including Walmart Inc, Kroger, Coca-Cola Company and Kraft Heinz, have fallen 8.6 per cent in the past five trading days.

Many investors and analysts were shocked by the scale of the recent sell-off, CK Hutchison, which has entered its fifth monthIt is characterized by severe intraday shocks, which have not been seen since March 2020.

This week, the Binky Chadha team of Deutsche Bank analysts pointed out in a report to clientsThe sell-off in US stocks indicates a decline in pricing. The s & p fell more than 20 per cent from its record high yesterday, fell into a bear market at one point and is approaching the typical 24 per cent decline in the 1946 recession, and the sell-off in more than 90 trading days has far exceeded the typical downturn that has nothing to do with contraction.

"weak growth + Fed hawks" recession fears are rising rapidly

The latest batch of results is one of the biggest warning signs to date, large retailers such as consumer weather vane Target and Walmart Inc saidHigh inflation is eroding corporate profits. As inflation rises, household budgets are squeezed and consumer demand weakens, raising concerns about the future outlook for US consumption and corporate profitability.

This is a bad sign for investors who are counting on strong results to drive a rebound in u.s. stocks. Target's shares tumbled 29% this week, Walmart Inc fell 19% and Coles fell 19%.

Meanwhile, Federal Reserve Chairman Powell recently stressed that the central bank will not hesitate to raise interest rates, although this may slow economic growth. In an interview on Tuesday, Powell saidThe process of restoring price stability may cause some pain.

"Recession risk is definitely on the rise," said Zhiwei Ren, a portfolio manager at Pennsylvania Mutual Asset Management.

With the economy weak and Fed hawks, it is understandable that they are pessimistic about asset prices.

Goldman Sachs Group analysts said that in the derivatives market, futures linked to stock dividends show that investors expect the S & P 500 index dividend to fall in 2023.. In the past 60 years, with the exception of the recession, the dividend on the benchmark index has never fallen year-on-year.

According to Goldman Sachs Group, the futures market priced dividends per share at $64.55 this year, but only $60.60 in 2023, meaning a decline of about 6 per cent.

Us stocks have changed from "stagflation trading" to "recession trading"

The recent decoupling of stocks and bonds reflects concerns about the economy. For most of this year, US stocks have fallen as high inflation and expectations of higher interest rates have undermined the attractiveness of US stocks. But the yield on the benchmark 10-year Treasury note peaked two weeks ago and has since fallen from 3 per cent to below 2.9 per cent.This reflects a degree of risk aversion, and concerns about economic growth are beginning to outweigh concerns about stagflation.

Meanwhile, the prices of industrial metals such as copper and nickel are down 13 per cent and 42 per cent, respectively, from their March highsCopper and nickel prices tend to rise when manufacturing activity is booming and the economy is strong.

The third sign is thatTraditional defensive sectors such as public utilities and health care outperform the market.The utilities sector of the s & p 500 index is up 0.3% this month, while the health care sector is down 0.5%, while the composite index is down 5.6%.

The market fears that without a big increase in unemployment, the Fed will not be able to reduce inflation. Traders and economists worry that if the central bank raises interest rates too much and too fast, it could plunge the economy into recession, according to the Wall Street Journal.

The National Bureau of Economic Research (NBER), the official agency responsible for defining "whether the US economy is in recession", warnedEconomic activity across the economy will fall sharply and will continue for more than a few months.

Rick Pitcairn, chief investment officer of Peter Kahn's family office, saidHistorically, the Fed has been slow to respond and then tightened quickly in an environment of economic slowdown, leading to a deeper-than-expected recession.

The Deutsche Bank report showsEight of the past 11 interest rate hikes ended in recession.. In turn, the economic slowdown will seriously affect consumer spending and corporate profits, which could lead to further falls in major stock indexes.

The "recession" is still a long way off.

Despite this, Deutsche Bank said that apart from the stock market's shift to "recession trading", the US economy had "few typical signs of recession".. So far, economic data are still relatively robust.

The US added 428000 jobs in April, more than 400000 for the 12th month in a row, and the unemployment rate hovered at 3.6 per cent, slightly above the pre-epidemic low of 3.5 per cent.

Us consumer spending remained strong in March as households spent more on travel, catering, gasoline and food. Meanwhile, this week's data showed that US industrial output rose for the third month in a row in April.

Cliff Hodge, chief investment officer of Cornerstone Wealth, pointed out thatAll the data it tracks, even forward-looking leading indicators, do not suggest a recession is coming.While there is concern about the Fed's tightening of financial conditions to slow growth, this is not new information.

In addition, CICC also pointed out that there is still a long way to go before a quick recession, and according to 3m10s spreads, as well as corporate financing costs and investment returns, they have not yet completely reached the threshold. For example, 3m10s spreads, which are currently close to 200bp, will converge upside down around the end of the year according to the current path of raising interest rates.

Be prepared in advance: what should you do if a recession comes?

In a turbulent environment, it's not always a bad thing to be prepared in advance.

As mentioned in the previous article, Goldman Sachs Group recently began quietly distributing a "recession manual" to his professional subscribers to discuss the price, earnings and valuation of the S & P 500, as well as the performance of industries and factors in previous recessions. give some inspiration to investors who want to fend off recessions.

Goldman Sachs Group said that in the 12 months before the recession,Defensive and premium stocks usually outperform other types of stocks; sectors such as energy, consumer goods and health care usually outperform the market during recessions.

Other analysts have also given some advice, with Zhiwei Ren pointing out that he has become more cautious about investing in bonds, preferring higher-rated corporate bonds to riskier corporate bonds.

For investorsHigh-yield dividend-paying stocks are also a "safe haven"Even if the stock price fluctuates, these stock companies promise a stable cash flow.