I can still vividly remember sitting at my desk about this time in 2008, and the pit in my stomach given the stock market declines we had been seeing. For those of you that may not have been investing yet, or may not remember, September 2008 was one of the most financially and emotionally challenging months in investors' history. Bankruptcy’s, government bail outs, and layoffs, all part of a global financial crisis that felt like it would never end. Even as someone that worked in financial services and understood the system, I had to work hard to maintain a positive mindset.
Those days were hard, but we recovered. Our economy recovered, our investment accounts recovered, and with that for most of us, our comfort in investing has recovered. In fact, 2009 to 2022 while was not without some volatility, became a time of great financial abundance for many investors.
This year has reminded us that what goes up, can indeed go down, and that there is no reliable predicting that can be done to give us that much desired ‘crystal ball’ ahead of time. In fact, history has proven predictions of market and economic collapses typically don’t pan out, and yet if you turn on (or click on) the news, those predictions are still made with frequency.
Since fear does tend to sell more, and (for some reason) bearish always sounds smarter than bullish, the press tends to give airtime to the folks who are predicting that the sky will fall.
No one can answer that with certainty but after spending hours this past month following what is going on, here’s what I’ve found to be important.
- Over the long term, the economy expands, and wealth is created. 1
- The U.S. Consumer, though frustrated by inflation and investment declines, is still in many ways in strong financial shape.
- We have an exceptionally strong labor market (in fact, not enough employees!)
- Corporate America is in strong financial shape.
- Home prices are at an all-time high. (Leading to high levels of tappable equity).
- Inflation data points seem to have peaked.
- And last but not least, innovation. As a country, and a world we are changing. The US is a breeding ground for the entrepreneur, for growth and innovation. In the last 2 years alone, our lives have changed in many ways because of innovation (#ThankyouCOVID). In fact, at a recent industry conference I had the opportunity to listen to an economist (Strider Elass, Senior Economist of First Trust Advisors, LP) who is part of a team that was ranked as one of the top forecasters of the US economy by Bloomberg. Elass spoke about this innovation and said point blank “I think the best things we’re ever going to see will be in the next 5-10 years. Productivity will go through the roof.”
So when you’re turning on the news this week, if you’re hearing more financial news that gives you pause and concern, I hope these points will help you put those short term bearish comments into perspective. You’ve heard it from us before, investing is a long-term plan. And because, we know that sometimes, short term noise can affect confidence in the process, and confidence in the system, I hope this write-up can help.
In closing, I’m including below a couple of resources that address some of the most frequent questions I’m hearing. If you’ve been wondering how the stock market relates to the economy (is it tied to recessions?)2, or how previous stock market recoveries have played out3. Check out the links below.
As always, we are here to answer any questions you may have.
1Investopedia: The annual average rate of return of the S&P 500 from 1957 – 2021 was 11.88%
2How Does the Stock Market Relate to the Economy?
3A glance at previous market declines, and their recoveries