Little Bits Of History Repeating

As the year draws to a close, think back to December 2019. The economy was buzzing. Unemployment, interest rates, and inflation were at historically low levels.

But then what happened?

A global pandemic hit. By the middle of March 2020, the FTSE All Share had dropped over 30% in value.

Later in the year, scientists announced they’d developed a vaccine, and markets raced back.

• FAANG stocks soared … before giving up a lot of gains.

• Bitcoin and other cryptocurrencies reached record highs … and then crashed.

• Inflation spiked to the highest levels most of us have ever experienced.

• And Russia invaded Ukraine, sparking a humanitarian crisis and geopolitical uncertainty.

I don’t know anyone who predicted all of that back in December 2019.

But what if someone had? What would you have done?

What if that person told you, despite all that bad news, from those lows in March 2020, the FTSE All Share would return over 60%?

Would you have believed them? Would you have stayed in the market?

Because that’s what happened. That's where we were with equities in March 2020. And that is where we are now with bonds.

The conclusion I hope you reach is that it’s unrealistic to think anyone can outguess markets.

In the short term, there are often wild swings. Making a change during either can be dangerous.

But Isn’t There A Recession?

Yes. And some may worry about the stock markets falling after a recession is officially announced.

But history shows that markets incorporate expectations ahead of economic reports.

The global financial crisis offers a lesson in the forward-looking nature of the stock market. The US recession spanned from December 2007 to May 2009, as indicated by the shaded area in the chart.

But the official “in recession” announcement came in December 2008 - a year after the recession had started. By then, stock prices had already dropped more than 40%, reflecting expectations of how the slowing economy would affect company profits.

Although the recession ended in May 2009, the “end of recession” announcement came 16 months later (September 2010). US stocks had started rebounding before the recession was over and climbed through the official announcement.

The market is constantly processing new information, pricing in expectations for companies and the economy. Investors who look beyond after the fact headlines and stick to a plan may be better positioned for long-term success.

In Conclusion

So as we start 2023, let’s remember the lessons of the past three years and beyond. Let’s develop - and stick to - plans that take us through the short-term ups and downs of market fluctuations so we can capture the long-term benefits of investing.

And I've seen it before

And I'll see it again

Yes, I've seen it before

Just little bits of history repeating