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2023/01/31

All I Hear Is Doom and Gloom

Shield

AN OXFORD CLUB PUBLICATION

Wealthy Retirement

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Recession Coming? Don't Be Scared Out of the Markets

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

"All I hear is doom and gloom
And all is darkness in my room
Through the light, your face I see
Baby, take a chance
Baby, won't you dance with me?"

- The Rolling Stones

Recently, I participated in an investment panel. One of the panelists was so negative, I was surprised he could get out of bed in the morning. He suggested that President Biden was going to lead the U.S. into nuclear war with Russia.

Maybe he's right, I don't know. I'm not a political analyst. But if he is correct, investments will be the least of our concerns.

He also predicted a deep recession this year (presumably before the nuclear war). I see absolutely no reason to expect that. But I'm no Pollyanna. I did forecast a mild recession this year. However, there is a big difference between a normal, run-of-the-mill recession that occurs every so often and a devastating setback like we saw in 2008, which hadn't happened for 70 years prior.

Doom and gloom sells. There are a lot of serious problems in the U.S. and the world, so it's easy to point out all of the reasons the economy is in trouble and stocks will collapse.

Except, they generally don't. And on the rare occasion they do, they bounce back.

The dot-com collapse of the late 1990s was the biggest stock market bubble since the Great Depression. Valuations went out the window, as stocks would rise hundreds of points a day because companies reported more eyeballs on their website than they had the previous month - despite having no way of converting those eyeballs into revenue.

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Companies that added ".com" to their names saw their stocks rise 50% in a day.

It was insane.

And the reckoning was severe. The S&P 500 was just about cut in half between March 2000 and October 2002. It took about seven years to fully recover.

The global financial crisis that began in 2007 was also bad. It took the S&P lower by 53%. That time, it took just four years to fully recover. Stocks then entered a 12-year bull market that saw the S&P triple.

Stocks go up over the long term. We know this. They have done so for over a century.

Historically, the market goes up an average of about 10% per year. Of course, that's not going to happen every year. Some years will be terrible, like 2022, when the market was down more than 19%. Other times, you'll see tremendous returns, like 30% in 2013, 29% in 2019 or 45% in 1954.

The media keeps you hooked on all of the bad news in the world. And there are admittedly a lot of terrible things out there. But most people get up in the morning, go about their day and live their lives. That's not very interesting from a media perspective. But that's real life, and it's what fuels our economy and markets.

Sure, there are occasional black swans - unexpected events that can not only disturb our markets but upset our daily rhythms. But historically, they have been short-lived, and the economy and markets recover.

The next time someone tries to scare you out of the markets, remember that history is not on their side.

Good investing,

Marc

P.S. My go-to investing strategy is based on the fact that stocks go up over the long term. It's called the 10-11-12 System, and the goal is that you will generate 12% average annual total returns with dividends reinvested over 10 years. Let me tell you... it works. This system is the foundation of my newsletter, which you can learn more about here.

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