Don't Wait For The Recession

| January 17, 2019
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I wanted to highlight a great research piece from CornerCap that highlights the fact that by the time we are in a recession stocks are typically within their bottoming process.

Thus, the ‘recession call’ is not a signal to sell! That would be too late!

What we found was that since World War II, stocks on average were actually UP 5.6% DURING recessions; it was in the periods leading into recession that they tended to be down—on average -8.0% from market peak to start of recession.

For reference, the average recession lasted 12 months, and the period leading into it averaged nine months, although it ranged from only a few day’s notice to as much as two and a half years.

Similarly, stocks did better DURING the recession in 11 out of the 12 recessionary periods. In six of those periods, stocks were up double digits, while stocks were down in 11 of the 12 periods leading up to recession.

The message here is that:

  • Stocks have historically been forward-looking and tend to respond to a recession BEFORE it actually happens.
  • Waiting for official economic data to tell you that a recession is here will generally make you miss the rebound.

In other words, recessions have tended to be lagging indicators of stock market performance, perhaps by a few weeks but more like a year or two. The recessions may not occur at all. But once the recessions occur, the market is already looking beyond them and towards the potential recovery.

Stay Tuned, Disciplined & Patient! {TJM}

The Investor & Character Equation (ICE) | S + R = O

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