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Fear of a recession 'bodes well for the stock market,' Ariel Investments Co-CEO Mellody Hobson

Recession fears can wreak havoc on retirement plans and nights of sleep — but they also can do wonders for the stock market, says the leader of a multi-billion dollar investment firm.

In a newly released interview, taped last month, Ariel Investments Co-CEO Mellody Hobson says worries of an economic downturn offer up a trading opportunity that some may not expect.

“The fact that we are on recession watch probably bodes well for the stock market in a very weird way,” she says.

Hobson, a longtime proponent of value investing and admirer of Berkshire Hathaway (BRK-ABRK-B) CEO Warren Buffett, invoked her financial role model to explain why.

“As Warren Buffett says, the market climbs a wall of worry. And that worry that is out there continues to create opportunity,” she says.

On Friday, a mixed jobs report functioned as an economic Rorschach test, confirming the recession fears of some while allaying the doomsday concerns of others. On the whole, markets rallied on the news. The jobs report came after a week of troubling data that includes a drop in manufacturing activity for the second consecutive month and a World Trade Organization prediction that global trade will fall dramatically.

When panicky investors turn their backs, that gives savvy traders a chance to find undervalued stocks, Hobson said.

Ariel Investments Co-CEO Mellody Hobson appears on Influencers with Andy Serwer.

“Even though we've had this tremendous run in the stock market over the last decade, we're still finding value, because when companies disappoint, they basically get shot,” she says. “They get left for dead. And it's those businesses that get left for dead that create an opportunity for us as value investors.”

Hobson is the co-CEO of Ariel Investments, a firm with assets totaling $12.9 billion, where she worked for nearly the past three decades. Her Ted Talk on challenging racial inequality, given in 2014, has been viewed more than 3.7 million times.

She made the comments during a conversation that aired in an episode of Yahoo Finance’s “Influencers with Andy Serwer,” a weekly interview series with leaders in business, politics, and entertainment.

For her part, Hobson said she does not see evidence of an impending recession.

“We might see the economy slow, but we're not seeing a recession,” she says. “We just don't see it right now.”

Speaking before the release of October’s jobs numbers, she said the recent employment data suggests an economy with strong upsides.

“When you look at some basic statistics, the employment numbers are so compelling. We've seen some wage inflation, which helps with consumer spending. Consumer confidence has stayed very, very high. There are a lot of positives.”

“I would say that my view right now is, the market certainly is fully valued,” she adds. “However, we think the fundamentals, especially in the U.S., are still very good.”

Andy Serwer is editor-in-chief of Yahoo Finance. Follow him on Twitter: @serwer.

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