- According to the chart below, since 1954, economic expansions tend to be a good time to be invested in stocks (SPX = S&P 500*):
- Some observations:
- As the numbers show, we are about 62 months through this one
- It’s right around the average and median since 1954
- Further, there were 4 expansions longer than this once
- The market return has been greater than average, though the market did have a lower bottom than any market prior
- Valuation level was also at a relative low:
- And regardless, there have been 2 expansions where the returns were higher
- Anyway, all this says to me that we aren’t in unprecedented territory in terms of length or stock growth in this expansion…
- And while we might be long in the tooth, nothing in the data indicates we are at extreme levels
- But what if the expansion is ending…
- Maybe the expansion ended this month and we didn’t realize
it for 6 months (recessions are usually decided after the fact). Highly
unlikely with GDP coming in at 4.2%, but even so the first 6 months of a recession
haven’t been destructive for stock market returns, assuming you hold throughout:
- Ok, we likely aren’t in a recession now, but what if we start a recession in 6 months? After all, the common mantra is that markets lead the economy. Again, while the returns are likely negative:
- Altogether Now:
- Expansions yield solid returns for stocks
- It’s likely we are still in an expansion (note: ISM has been in recession once with ISM at 59 or higher):
- Even if we are going into a recession, the months leading up to a recession haven’t had a HUGE drawdown (> 25%), despite a likelihood they will be negative
- Thus, as it’s highly probable the economy is expanding there are potential equity returns that outweigh the risk of a drawdown…
- And as a result waiting to pair back your equity exposure until you are certain the economic fundamentals have deteriorated is likely prudent
*Please see the important
disclosures that apply to this commentary HERE. The above charts are for illustrative
purposes only and do not attempt to predict actual results of any particular
investment.
