The definition of a bear market is pretty straight forward…a 20% drop over 2+ months from previous highs. That is what we are in and there have been only 3 bear occurrences since 2000, with one of them lasting just 33 days (2020). (Technically, the Nasdaq market has now entered bull market territory, having rebounded 20% higher than its recent low). The idea of being in a recession appears to come with a bit more debate…is it two consecutive quarters of negative GDP growth, or a combination of negative growth, high inflation, and an increase in unemployment. While we wait for the bureaucrats to argue the definition, let’s consider two things, one, once they label a recession, we are probably on our way out of it, and two, recessions should be viewed with respect to their level of magnitude. With a strong jobs report and now a cooling of inflation from recent highs, the economy appears to be hanging in there. If the recession remains mild, and inflation tempers, that could be the definition of a recovering stock market.
It is time to flip the calendar on another year and also to reflect on what has been a very impressive market in 2021. Speaking of markets and calendars, the total return on the S&P 500 (the 500 largest US companies) has been quite impressive for the past 95 years, or dating back to 1926. Think about this, over this period we have seen countless historical events…wars, depressions, recessions, embargoes, financial crisis’s, and throw in a pandemic, yet the market has still had a 10.3% average annual return. Remarkable. Even more remarkable, over these 95 years we have only seen seven calendar years where the market is down by 14% or more, just seven. On the flip side we have seen 48 years (more than half) up 14% or more. We cannot predict the future but we can use the odds to our advantage. Here’s to a healthy and happy 2022!
According to a recent Wall Street Journal article, the value of tax-loss harvesting is quite impressive. Tax loss harvesting is basically managing long and short term gains to the investors advantage. Using someone in the 25% income tax bracket, their studies show that in a strong market, managing taxable gains and losses can add 1.1 to 1.42% to annual returns. Even more impressive, during significant downturns when the S&P is negative, this harvesting can add about 3.21% to yearly performance. So whether the market has been naughty or nice, tax management can be a gift to returns.
Thanks to Kevin Caron at www.washingtoncrossingadvisors.com we get to consider this…Back to the old Buttonwood tree in NYC in 1790, when the value of stocks were first calculated, it took over 200 years for the US stock market to top $16 trillion in value. Based on today’s current value, we have risen by $16 trillion in market value since the pandemic BEGAN. A recession and health crisis that produced a $16 trillion gain in value, go figure. One, it shows the law of large numbers and too, it may be pointing to some inflation momentum in financial assets. Speaking of inflation, again this past week, Janet Yellen stuck with her premise that we are in a “transitory” period of higher prices, yet today social security payments were adjusted higher by almost 6%. Social security payments do not go lower so the only thing transitory is the money leaving your pockets.
Katy Milkman, a behavioral scientist at the Wharton School has written about “the fresh start effect”, or the effect that birthdays, the start of a new season or other landmark dates have on our ability to make changes to our lives. For example, with back to school and the fall season upon us, we may be more inclined to begin a new healthy and or profitable habit. So pump the brakes on the pumpkin lager and pumpkin spice drinks and pour your savings into a compounding investment and kick off a new fall beginning.
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Content Disclaimer All comments contained herein are for informational purposes only, and should not be considered as a solicitation to buy or sell any security. The firm does not guarantee the accuracy or completeness of the information or make any warranties regarding results from its usage.