Albert Einstein once said “everything should be as simple as it can be, but not simpler.” Pictures often tell a very simple and very clear story.
We are worried today about the stock market. The economy has been up for almost a decade and the market has marched right along in line. Shouldn’t we be due for a Bear Market or a Recession, or both? Possibly. But take a look at the chart at the bottom. The U.S. economy has been in recession since 1950 only 13% of the time. The rest of the time the economy has been growing and the stock market has followed suit. Relative to recoveries, economic downturns are short, although painful, and stocks do decline but then they recover, and often do so impressively. Stocks typically increase six or seven years out of every ten.
So trying to time the next recession and sell your stocks is difficult. Maybe it’s better to simply assess your needs, hold what you need for the next 2-3 years in safe and secure things and let the rest stay invested according to your long term strategy.
Since the Great Recession ended in 2009 the U.S. stock market has been the star performer. Much better than Developed International markets or Emerging markets. The chart at the top shows that U.S. stocks and Emerging market stocks have been diverging quite dramatically. A chart showing International stocks (Europe, Australia and Japan) and the U.S would look the same. The divergence is getting about as extreme as it has ever been the last twenty years.
Emerging market investors are worried that commodity prices are weak and may stay weak since the biggest buyer (China) is slowing. But what often happens when valuations between markets get out of whack is that the cheap, for one reason or another, get more expensive relative to the current leaders. As the old saying goes, “history may not repeat itself but it does rhyme”.
So our advice now is, don’t lose track that recessions (and Bear markets) are short and recoveries (and Bull markets) are long, and when looking at the stock market, don’t count out International.