Should You Fear A Recession?
I wanted to share with you some commentary on recessions and returns going into and out of them.
Stocks soar, they plunge and sometimes they trade sideways. This volatility is unnerving, but it is actually normal behavior for equity markets. And, historically, stock markets have always recovered regardless the cause, depth or duration of the correction and proceeded to hit new highs.
Consider this. There have been 11 recessions in the U.S. since World War II and interestingly, investing at the start of a recession does not necessarily mean you will lose money.
For long-term investors, it is often just as good to invest at the start of a recession as you can see in the table below.
The average one-year return after the start of a recession is -0.2%, but over longer periods the results are encouraging with the average 3-year annualized return of 7.4%, 5-year annualized return of 6.3% and the average 10-year annualized return of 7.0%. Notably over a 10-year period, you would have only lost money once out of the 11 recessions for a success rate of 91%.
As we look forward, things may get a little worse for the economy, but the U.S. Federal Reserve Board has demonstrated it is ready to take decisive action, which is supportive since the S&P 500 Index has historically been higher one year after aggressive easing cycles.
As an investor, risk can't be eliminated, but it can be managed through good old diversification. Having the appropriate mix of investments can ensure that your portfolio is positioned for success over the long term. Please, check out attached two pdf files.
Bear Market Decision Balanced.pdf
Bear Market Decision Equity.pdf
The last thing the world needed was even more uncertainty, but Saudi Arabia decided this past weekend was the right time to announce an oil price war, which sent global oil prices sharply lower and heightened investor anxiety.
The energy sector was hardest hit as oil prices fell more than 30 percent and the financial sector followed close behind as investors grappled with the implications of the entire U.S. yield curve below 1 percent for the first time in history.
It’s hard to call the bottom, so those seeking academic templates and traditional signals to diagnose the ultimate bottoming mechanism of US stocks will continue their befuddlement. I would prefer to see how the virus behaves in North America and start buying when virus is contained.
Coronavirus (COVID-19 virus) is a human tragedy - there is no way around that. But our experience tells us that it cannot and will not wipe out every fabric of investing. As such, we continue to believe US companies will ultimately provide, define, and lead the recovery – when and only when the fear abates. Please, call me ANYTIME or email me if you would like to set a time to discuss your portfolio or markets in general.