Overheard Positives on the Economy and What You Can Do.
Is there a positive sign anywhere with all the strange stuff going on in the economy?
1. Banks are in very strong shape.
2. This looks like a somewhat standard bear market and recession so far.
3. It does not look like a financial crisis ala 2008 because banks and financial institutions are in very good shape – much better shape than 2008.
4. Therefore, this should not be as severe.
5. Could we still navigate a soft landing? Yes, but that could mean a longer yet less severe recession and bear market. If the soft landing can’t be navigated, then the recession and bear market will likely be more intense. And if so, then hopefully it is shorter lived if the Fed eases policy. Which is better? It’s two ends of the same sword, but See here how long bear markets have lasted in the past. We are currently about 6.4 months into this bear market. The average length is 11 months, and the median length is 7.2 months.
6. The Fed has to get people to stop spending so that it can tame inflation. Let’s all do our part, but it’s tough to find the happy medium. Slow your spending, but not so much that we go into a recession – only just enough so that we curb inflation. If everyone spends a little less, then inflation is tamed. If everyone spends a lot less, then we enter a recession. How much do you think you should pull back on? It’s a tough needle to thread.
7. Why should we stay invested in the market and not just sell?
- If you invested in a hypothetical S&P500 fund 20 years ago and missed the first 10 days of each market rebound, you would've forfeited more than half your gains vs. just holding. This is why staying invested during down and volatile markets is important. See the results here.
- On average, just one year after a market decline of 10%, stocks rebounded 12.5%, and a year after 20% and 30% declines, the cumulative returns topped 20%. Five years after market declines of 10%, 20%, and 30%, the average cumulative returns all top 50%. Handsome rebounds after steep declines can help put investors in position to capture the long-term benefits the markets offer. See the chart here.
8. How can you make it through a market downturn? See this.
9. What else can you do? Here is another idea.