Slow and Steady is Winning (again)
Do you remember September 20, 2018?
On that beautiful sunny day last year, equities, as measured by the S&P 500 index, would hit their all-time-high. They would go on a rapid descent through the end of 2018 until equities were twenty percent lower on Christmas Eve. Actually, the S&P 500 went lower for an hour or two during the following trading day before beginning to grow in value.
We are now at or near all-time highs again. We have experienced the longest recovery from a recession in history. Many people feel “it’s just time” for a crash—but I want to disabuse you of the notion. First, we’ve crashed (twice) during the “longest recovery in history” and second, it's been a long, slow recovery.
The fear I heard last year was loud and clear—and I hear some of that again today. Do you think we may be heading into a recession? None of us know, of course. There are no facts about the future. But a recession is, in large part, not our concern.
Our concern is our investments. The following chart shows the two most-recent bear market declines. I chose the S&P 500, which is an index that tracks 500 of the largest companies in the USA. During the recent economic recovery, we’ve had two declines of approximately twenty percent that lasted three months and five months, respectively.
Last year’s 3-month bear market was one of the quickest declines. It was also a fast recovery. As I discussed above, we are at, or near, all-time highs again. The second most recent bear market was in 2011—that loss is close to twenty percent, and it felt horrible. Many economic pundits predicted the end of the US dollar, among other catastrophes in 2011. The market is up nearly 300 percent since October 3, 2011. (1)
The point is—these temporary declines are not always aligned with a recession—or anything predictable at all. Yet, the fear is real. And the news coverage will always be scary. As it is today, predicting that next decline is entertaining folly.
The second point, worth pondering, is the length of this recovery. This is the longest recovery, without a recession, in America’s history. Some say the recovery is long in the tooth, but it is slow. By many measures, this is America’s slowest economic recovery.
With a couple of bear markets during a slow recovery, perhaps equities are not as “over-bought” as many pundits say. Perhaps it is neither as good, nor as bad, as the news may make us feel.
I would be remiss if I don’t give one of my mentors, Nick Murray, credit for the table and the ideas; the writing is my own and I’ve only myself to blame for that.