Let History Be Our Guide
In 2008 it felt like the world was unraveling. The massive US housing bubble popped in spectacular fashion, the result of banks selling fraudulent mortgages to anyone with a pulse. As property values collapsed, the entire financial system was brought to its knees. During the 2008 market crash we saw the 4th largest bank file for bankruptcy (the biggest ever), Warren Buffet provided rescue loans to banks, and Congress passed a $700 billion bailout, that included taking over all financial institutions deemed ‘Too Big to Fail’. The stock market fell 37% in 2008. We were truly on the brink of another Great Depression. On November 12th in the depths of the crash, Apple shares were trading at a split adjusted price of $3.23 per share (they were down over 50% at the time). Apple is up nearly 4,000% since the bottom in ‘08, which means $100,000 grew to nearly $4,000,000. You never anticipate returns this extraordinary, especially when you’re in a brutal recession. My point is this: often it’s in the darkest days of a crisis, when fear is elevated, that the best opportunities present themselves.
On Monday, the U.S. stock market officially fell into ‘bear market’ territory, characterized by a drop of at least 20% from a recent high (January 3rd). The S&P 500 is down 23% this year, and the tech heavy Nasdaq index is down 32%. Bespoke Research published a piece on bear markets that showed the following:
since World War II, there have been 14 bear markets
stocks fall on average 32%
they last on average 339 days (we are on day 168 of the current bear market)
of the 14 bear markets, 8 were associated with recessions, 6 were not
forward returns are historically significantly better than average
6 months after hitting the 20% threshold, the market is up on average 7.2%
1 year after hitting the 20% threshold, the market is up on average 17.7%
“We’ve had bigger shocks in the past...There may be another 5%, who knows, there may be another 10% [down], but that means for me, moving forward, that just raises the return on the market looking forward…hold in there. If you got cash, begin to employ it. You won’t be sorry a year from now”
In a recent HW newsletter I mentioned that that I didn’t believe a U.S. recession was imminent, due to a strong jobs market and robust consumer spending. However, the data has changed, our economy is clearly softening. The Atlanta’s Federal Reserve Bank updated their GDPNow projections and they now expect no economic growth in the 2nd quarter. Nobel winning economist Robert Shiller believes there is a ‘good chance’ the U.S. falls into recession within the next 2 years and places the odds at 50%. Bespoke recently reported that bear markets associated with recessions (8), historically rebound 21.13%. For bear markets that were not associated with a recession, the return 1 year after falling 20%, was a median 23.9%. I fully understand that it is very difficult to imagine a strong rebound right now, but history has demonstrated that this is what happens.
Fortunately, bear markets (and recessions) don’t last forever. Ultimately, markets rebound and attain new all-time highs, every time. The share price on some of the greatest wealth generators that have ever existed are down 30-40%. It was difficult to find opportunities last year when the market was at an all-time high. Times have changed, and we’re taking advantage of lower prices, just as we have in the past, confident we’ll be rewarded in time. This is not a buying opportunity for investors who took on too much leverage and/or loaded up on speculative growth stocks and crypto. I can’t tell you when, but I do know this too shall pass. At times like these, it’s vital to keep in mind why we’re investing. Whether it’s to secure a multi-decade retirement, fund college education for kids or grandkids, or leave a lasting legacy for your heirs. Historically, stocks consistently beat inflation, and they are a proven, effective vehicle to help you attain serious long-term objectives. Now is a great time to review your financial plan to ensure we’re on the right path.
We are here for you and look forward to discussing further.
Thank you!
--randy
The opinions expressed in this newsletter are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this newsletter is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Hamilton Wealth, LLC is a registered investment adviser. Advisory services are only offered to clients or prospective clients where Hamilton Wealth, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Hamilton Wealth, LLC unless a client service agreement is in place.