“Monetary conditions exert an enormous influence on stock prices. Indeed, the monetary climate – primarily the trend in interest rates and Federal Reserve policy – is the dominant factor in determining the stock market’s major direction.”
– Martin Zweig
June was a rollercoaster ride for investors. The S&P 500 punctuated a 3-week losing streak by falling firmly into bear market territory—down over 20% from its all-time high on January 3—only to rebound the following week by +6.5%. Inflation continues to be the driving force animating the Fed, which responded with a 75 bps rate hike on June 15th, the most significant move in 30 years.
Economic data (including market performance) and aggressive Fed activity have many market participants nervously watching for signs of a recession. Historically, two consecutive quarters of negative GDP growth were considered necessary to determine the onset of a recession. The National Bureau of Economic Research (NBER) changed that in 2020 because of the two-month COVID-induced recession. The official definition is now “the period between a peak of economic activity and its subsequent trough, or lowest point,” and its determination involves an ambiguous interpretation of the “depth, diffusion, and duration” of decline in economic activity. In short…market participants will only be made aware of an official recession when the NBER Business Cycle Dating Committee makes an official determination.
One of the best predictors of a recession is the stock market itself. As a forward-looking system, markets tend to fall in advance of recessions and start climbing earlier than the economy does. Market returns have tended to be positive during periods of economic recession. Over the past century, returns on U.S. equities have been positive two years after a recession began for 12 of the 16 recorded recessions. Using that data as a guide, long-term investors can take some solace in knowing that the optimal strategy has been to endure the downturn, ignore the talk of recession, and ride the recovery to higher levels over time.
Articles of Interest
Are We Headed for a Recession?
Just two years removed from the last US recession, negative stock returns and aggressive US Federal Reserve interest rate hikes have many investors concerned we are headed for another big “R”—if we’re not already there. But recessions are always identified with a lag. By the time one is called, the worst of its impact on markets has usually passed.
Smart things to do (that many won’t) in a down market
You know that at some point, markets will decline. Perhaps the most unsettling aspect of market downturns is the perceived loss of control. That dread can be exacerbated by the constant drumbeat of dire news coverage of the financial markets and global and U.S. economies. However, you have the power to follow the actions that historically have resulted in success in weathering market lows.
6 Things to Know About Stock Market Crashes and Downturns
History is a great reminder that the stock market is not the same as the economy. Market downturns can be frightening in the short term, but this analysis shows that for investors who can stay in the market for the long run, equity markets continue to provide rewards.
Which Documents to Keep, Which to Shred and Which to Scan
What documents can you throw out, and which must you save, and where do you put them, is a debate as old as, well, writing things down. But technology and natural disasters have thrown in a few new twists.
87 Things That Money Can’t Buy
“…Say you don’t need no diamond ring
And I’ll be satisfied
Tell me that you want the kind of things
That money just can’t buy
I don’t care too much for money
Money can’t buy me love…” – The Beatles
Advisory services offered through KCPAG Financial Advisors LLC and insurance services offered through KCPAG Insurance Services LLC, subsidiaries of Kemper Capital Management LLC. Tax services offered through Kemper CPA Group LLP.
Symmetry Partners, LLC, is an investment advisory firm registered with the Securities and Exchange Commission. The firm only transacts business in states where it is properly registered, or excluded or exempt from registration requirements. Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission.
No one should assume that future performance of any specific investment, investment strategy, product, or non- investment related content made reference to directly or indirectly in this newsletter will be profitable. You should not assume any discussion or information contained in this email serves as the receipt of, or as a substitute for, personalized investment advice. Symmetry does not provide tax or legal advice and nothing either stated or implied here should be inferred as providing such advice. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.
Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the occurrence of which would have the effect of decreasing historical performance results. Actual performance for client accounts will differ from index performance.
S&P 500 Index represents the 500 leading U.S. companies, approximately 80% of the total U.S. market capitalization.
TREASURY Bloomberg Barclays US Treasury TR: U.S. Treasury Inflation Protected Securities Index provided by Morningstar Direct. The index includes all publicly issued, U.S. Treasury inflation-protected securities that have at least one year remaining to maturity, are rate investment grade, and have $250 million or more of outstanding face value.