Animals hibernate for self preservation—to conserve energy during adverse conditions. But then they emerge, ready for the more bountiful period that awaits.

While we still see an economic setback ahead, and a commensurate market reaction, we expect markets to discount the pending recession, and then once again focus on recovery. In the meantime, we are hibernating—hedging portfolios (afraid of market declines) and buying undervalued, high-quality, recession-resistant companies below our estimated FMVs.

Most don’t practice value investing—instead relying on buy and hold, momentum, or index strategies, all much easier on the psyche in the short term. To us, it’s simple common sense to embrace mean-reversion strategies—those offering better upside potential, especially during a period when most securities have downside risk since they are already at or above FMVs.

The rise in interest rates has been felt across the U.S. economy. Commercial and Industrial loan growth is declining, for the first time since 2020. And it began declining before the recent U.S. bank failures, which were 3 of the 4 largest of its kind. We will continue to hone our short game—hedging portfolios—while playing the long game—owning high-quality companies we expect to grow their earnings and underlying valuations.

Globally, growth is waning, though at a tepid pace because of the prior avalanche of government stimulus, rebuilding of supplies, and extremely low unemployment. Will central bank restraint lead to a mere petering out of growth, if inflation is quickly perceived to have been ameliorated, or is recession inevitable from one of the fastest tightening responses on record?