Inflation is at levels not seen in decades, interest rates are steeply rising to combat it, and the war in Ukraine continues to take a tremendous human and economic toll.
It's no wonder there is considerable fear about a recession.
Fidelity International investment director Tom Stevenson reminded us only a couple of months ago that US Federal Reserve chair Jerome Powell was talking about engineering a "softish" landing.
"Today that seems almost childishly optimistic," he posted on Livewire.
"My strategy colleagues here at Fidelity now believe there is a 60% chance of a hard landing in which central banks push the economy into recession, by accident or by design, in order to rein in dangerously rising inflation expectations."
Even if Australia luckily avoids it, the US falling into a recession will leave an indelible mark on Australian investors.
This is because ASX shares generally follow the fortunes of their American counterparts.
So with this in mind, what can you do to protect your portfolio against economic calamity?
Stevenson this week set out a useful checklist for investors to go through:
Image source: Getty Images
Buy quality
In troubled times, the simple strategy is to avoid buying shares in speculative companies.
"The companies usually best placed to pull through a recession are those with solid balance sheets, decent profit margins, and strong positions in their markets."
Steven said added that once it seems like a recession — or the fear of a recession — will pass, pre-profit growth companies will come back into favour.
"But we're a long way from that point. Consider sticking to the best for now."
Defensive companies
It's the same thinking that dictates investors should buy into companies that consumers will keep patronising through downturns.
"Those selling goods and services that we can't do without — such as food, household products, utilities, insurance, and critical infrastructure," said Stevenson.
"Cyclical stocks will have their day as we move through the recession but, again, we are not there yet."
Diversify by sector and geography
Buying shares in different sectors, but also geographies, is important to protect one's portfolio.
That's because no person — not even the experts — can predict which markets will be favoured.
As an example, Stevenson referred to the outperformance of the FTSE 100 Index (FTSE: UKX) this year, which no one could have guessed in January.
"Likewise, preferring China and emerging markets is a minority view today," he said.
"Investors in Shanghai and Shenzhen took their medicine through Beijing's regulatory squeeze and the zero-COVID months. Things could look up from here."
Don't try to time the market
We hear this advice from experts all the time, but human nature dictates every investor is guilty of trying.
"You probably won't catch the bottom, just as you probably missed the top at the start of the year."
Keep the bear out of your mind
It is not uncommon for investors to go into their shells when turbulence hits the markets.
But rationally, it is the best time to buy. Everything's on sale.
"Most importantly, don't become more bearish as the market falls," said Stevenson.
"It's human nature to do so. Resist it."
Consider bonds to counterbalance shares
If a recession arrives, central banks will stop hiking interest rates.
This means the current yields on bonds may not last for too long.
"Government bonds yielding more than 3% will seem rather interesting if interest rates head lower once more," said Stevenson.
"Consider locking in some of that yield now."
