Q&A: Can any data predict the next recession?

He said investors need to consider the profits of all companies rather than just look at profits at listed companies as many of the larger listed UK companies derive their profits and make their investments overseas. Looking only at them would give you a false view of what companies think about the prospects for the British economy.

As well as rising consensus earnings forecasts – which are often drawn up in consultation with the firms themselves - Isherwood thinks the fact that many companies are making admittedly small acquisitions is a sign they are cautiously optimistic.

But surely companies are no better than anyone else at predicting a recession?

Going into recession the degree of mistake is huge.

‘Companies don’t see recessions coming. They hit the brick wall just like the banks and everyone else but in the post recessionary phase they become more right,’ said Isherwood.

Isherwood believes post-recession phases are always W shaped i.e. the rebound is always followed by a second down leg before picking up again.

The current shift from ‘euphoria to doubt’ is perfectly normal, he says, but he thinks at the moment many are being overly pessimistic as the market is pricing in a second recession when none of the indicators point to that.

So where should I put my money?

Isherwood said the corporate sector is giving us a positive message, the bond market is giving us the opposite message and the equity market is arguably caught in the middle.

He believes share prices are already discounting a second downturn. He said the bond equity earnings yield (used to measure whether bonds and shares are equally nervous about future risk) and price earnings ratios are back down at levels last seen at the beginning of last year before the upturn in stock markets.  

Some fund managers with a strong track record are increasingly convinced that you can buy some decent assets at good prices already.

If you can weather the storm and have time to wait for a return, you might want to follow their lead and move some of your money out of cash.

But most agree the road ahead will be bumpy and a second downturn cannot be ruled out. That means you should keep a close eye on all the so-called leading indicators and there may be a few more good opportunities to buy in the future.