Don’t Fear a Recession
Investors worry a lot. Are we at peak fear?
The headlines are so dreary. Regardless, don’t fear a recession.
The word recession is an ugly one. It can send shivers down an investor’s back. But let’s define what it really means. A recession is simply a contraction in the business cycle. A popular definition is an economy experiencing 2 consecutive quarters of negative GDP growth.
Today’s environment is facing tough times indeed. Sky high energy prices, Russian war, and runaway inflation could be enough to push us over the edge. Each of these alone are enough to derail the consumer.
Whether we hit a recession in 2022 is anyone’s guess. But one thing is for sure: We’ll face recessions in the future.
They are part of life. And guess what? We’ll get through the next one!
In a bit I’ll walk you through some recession history…and why it’s not the end of the world. From where I sit, they can spell opportunity.
But first, let’s clue in on the Big Money.
Stocks Rally After Big Selling in March
Last week we went over how Monday March 7th was off the charts. It was the biggest day of selling in stocks since the pandemic lows.
More importantly, history says big sell days usually result in bullish markets. But, as you can see, we haven’t seen destruction like it since. And markets have bounced bigly since with the S&P 500 (SPY) gaining 3.86% and NASDAQ 100 ETF (QQQ) jumping 4.76%:
Headlines of non-stop rate rises have been enough to send stock indexes down double digits to start the year. Growth has been sold hard. Many of those red signals above are fast-growing Technology stocks. YTD the tech sector makes up nearly 23% of those red signals you see above.
That’s a lot.
You can see how there’s practically zero buys in 2022. People are worried about growth:
Investors are incredibly fearful of the future. The earnings picture is murky, as Alec Young explained earlier this week. The economy may be set to contract. However, don’t fear a recession. Let me show you why.
Don’t Fear A Recession
Look, I can’t minimize how painful it is to sit through a recession. I had a front row seat to the Global Financial Crisis (GFC). Day after day, clients were gone one by one. It was awful.
The pandemic wasn’t great either. But you know what? We got through it. Eventually, markets recovered. And based on the study I did yesterday, looking at the data – investing during a recession may not be a bad strategy.
Stay with me.
I was curious at how the S&P 500 performed during and after a recession. If you think markets only go down when we’re inside a recession, you’re wrong.
Below looks at all 6 recession events going back to 1980. The left side of the table shows each recession and the beginning and ending months. The right side plots the S&P 500 cumulative performance through each recession, then the 1-year and 2-year performance post the end.
Source: FactSet
There are few things to make note of:
- In the ‘80s, the market performance is positive throughout the recessionary period
- The major outlier downtrend was the GFC
- The 2001 recession was a prolonged selloff after the recession
- The average returns coming out of the recessions were double-digit green 1 and 2 years out
Clearly a recession is no cake walk. They’re brutal.
But, over the past 40 years, there’s been light at the end of the tunnel. If history is any guide, we’ll get through the next one…whenever that is.
Looking at the numbers head on, my brain tells me, don’t fear a recession. It’s probably a great time to shop for awesome stocks on sale. Based on history, that’s where the MAPsignals process shines long-term.
The kinds of stocks that are on my radar can be found in our most recent MAP 50 report. So many quality stocks are well off highs. I’m shopping for bargains. This market weakness will eventually pass. Now’s the time to be greedy.
No fear.
Let’s wrap up.
Here’s the bottom line: We are facing some of the worst macro conditions in a long time: rising rates, wicked inflation, and world wars. Recently, I’ve had more than a few conversations about a potential recession ahead.
Maybe the next chat I’ll have I’ll be even more upbeat than I usually am.
History tells me there’s opportunity when you don’t fear a recession.
***And if you want to see 5 stocks that have done amazingly well in recessions, check out my latest video: Best Stocks To Buy in a Recession 2022. I found 5 potential opportunities and show off one of our soon-to-be-released portal modules.
Always remember that the process is more important than the picks.
Make sure to follow our YouTube channel here so you never miss any of our videos. If you enjoy these Big Money Insights, tune in each Sunday for my Big Money recap.
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****Finally, mark your calendars for Tuesday April 5th (11AM ET), as Jason presents: The Bear Market Guide to Picking Stocks. He uses our data to make sense of these crazy markets…and spot opportunities. It’s a free virtual presentation in conjunction with Wealth365.
