2. Should you have money for a home down payment in the stock market? What's your time frame? You said soon, so I'm assuming within 2 years. If it's less than 2 years, then no, you shouldn't have that money in the stock market regardless of whether you think a recession is coming. You should probably stick to money markets and CDs for short term goals.
I'd argue that you should always keep spare money in your investments in your predetermined asset allocation. It doesn't matter if you need the money in 1, 10, or 100 years.
This doesn't hold true if you don't have much money . . . like if you need 10,000$ and have 15,000$ savings, then there is real risk that you won't have enough money if a very bad downturn were to happen. If you've got a sizable chunk of savings though, I think that the risk of missing out is greater than possible gain by attempting to time the market using money market/CDs.
I partly disagree with this. Stocks are long term investments. Once you decide the portion of your assets to invest long term, then agreed, having that 100% in, 100% of the time is the way to go.
However, once you investment funds decline because you have a
certain need to spend the money, I recommend removing those funds from the investment pool, because a large market drop would possibly cause you to cash out funds outside your investment time horizon. The long bull has perhaps given the false impression that stock gains are linear, but this is far from the truth. Ive seen multiple bear periods, and many on this site have never seen a real one, only a one year correction, unlike what we had in the 60s and 70s. The 1990s Japan correction (i lived in Tokyo at its start) and later bear market lasted something like 15 years, with almost 30 years needed to recover. Friends had property and stocks drop 50% in 6 months and stay there a long time. im not predicting this will happen, but with China overtaking the US economically and trade war fears, a recession seems a slim, but possible outcome ahead. The US is looking a bit like 1992 Tokyo to my eyes...hot property markets, full employment, losing manufacturing and tech to other asian 'tigers' like Korea, expensive labor, aging skilled workforce, etc.
That said, it depends on how certain the need for money is. A vague idea that you
might want a home is agreed, not a sufficient cause to reduce investments. However, if you are actively looking and know you will need 50k within 6 months, I would have that in a money market, especially if it is a large portion of your investments, and if a large market correction would have you changing life decisions.
If the stash is over 1M and you need 50k within a few years, sure, let it ride. If your stash is 100k and you definitely need 50k for a home or school within 1-2 years, I think a more conservative allocation to cash is a good idea.