I’m often asked “are we in or going into a recession?” Technically, a recession is viewed as 2 consecutive quarters of negative economic growth. Whether or not an actual recession occurs, it’s safe to say that the market is in the process of factoring one in, rather than just pricing in a mere “growth scare.”

 

Whereas the previous four growth scares resulted in S&P 500 declines that averaged 17.4%, recessions typically produced deeper and longer-lasting downturns. Surrounding 13 U.S. recessions since 1937, the S&P 500 fell 32% and the market took a little over a year to bottom, on average. This one year is an important marker: “if someone is invested for one year or less, they aren’t properly invested”. What this means is that as part of one’s overall holdings: don’t invest in the market what you need to fund expenses in the next 12 months (at least).

 

As for recession or no recession: it ought to be noted that the market is a forward looking instrument: “markets bottom well before “recessions” end”. I’ve always held that it’s a fruitless exercise for long-term investors to try to time the market and pick the bottom. To be sure, this is different than holding on to all the same positions that we have in the past: and different times mean that we ought to position our investments accordingly.

 

Probably the main reason that I hold this belief, is that being out of the market on big rally days— which can occur just as abruptly and unexpectedly as big selloffs—negatively impact long-term returns. With markets down over 20%, it seems much of the weakness has already been priced in:

 

My crystal ball isn’t good enough to sell on the 10 worst days, and know when to get in for the 10 best days: this is beyond my expertise as a humble investment advisor…

 

 

I can’t believe Wimbledon is starting next week: for me always the marker of the start of summer. I’m putting together a crack research team in order to come up with some choice predictions, so stay tuned for next week (astute readers likely have noted that my sports predictions would be as reliable as calling the big rally days in the market!).