As stock prices continue to surge, many investors are hopeful that we might be in the early stages of a new bull market.
Others, though, are still concerned about the long-awaited recession potentially looming later this year. Recent comments from Federal Reserve Chairman Jerome Powell suggest that the central bank isn't finished raising interest rates, and it could result in more economic volatility.
Here's what that means about the probability of a recession -- and what investors can do to prepare.
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Is a recession around the corner?
In the Fed's most recent meeting to discuss interest rates, Powell said, officials decided against another hike this month. But future raises are not off the table.
"Looking ahead, nearly all Committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2 percent over time," he said during the meeting.
He also noted that the Fed is committed to doing "whatever it takes" to lower inflation to that target.
The inflation rate over the last 12 months sits at around 4%, according to the most recent data from the Bureau of Labor Statistics. While that's less than half of what it was this time last year, if the Fed continues hiking interest rates in an effort to lower inflation even more, it could spur a recession.
In fact, researchers from Deutsche Bank recently said that there's a "near 100%" chance that the U.S. will face a recession in the next 12 months. The experts believe that once consumers deplete any savings they've accumulated during the pandemic (which could happen sooner than expected once student loan payments resume), we're likely to see economic activity contract.
What you can do right now to prepare
The first step in preparing for a recession is to ensure you have a healthy emergency fund with at least three to six months' worth of savings. This way, if you face any unexpected expenses or job loss, you can avoid pulling money from your investment account or retirement fund.
As for your investing strategy, take this opportunity to focus on investing in the right places. Recessions are daunting, and even the strongest companies could struggle in the short term. But organizations with solid business fundamentals are far more likely to survive, and these are the stocks you want in your portfolio.
Also, while it's often easier said than done, do your best to keep a long-term outlook. Stock prices have been surging in recent months, but it's uncertain how long that will last if we face a recession later this year. That can be discouraging as an investor, and it's tempting to avoid the market altogether.
But the market has a fantastic track record of recovering from downturns -- often ahead of the economy. In fact, in nearly every recession over the past 50 years, the S&P 500 started its rebound before the economy reached its lowest point, according to research from JPMorgan Chase.
In other words, while the short-term future might look bleak, the market's long-term potential is far more promising. By investing in the right places and sticking with it through the tough times, you can set yourself up for potentially lucrative returns when stock prices inevitably bounce back.
