Although most major indices are within 15% of all-time highs, given the current global geopolitical events, there is a high level of stress when it comes to financial markets.
With that in mind, we feature an article from GE Asset Management, titled “86 Possible Reasons Investors May Have Avoided the Stock Market.” This data is from “The History Channel” and specifies a hot topic that made headlines in every calendar year from 1926 that may have caused you to change the way you invest or maybe you to have stopped investing all together. We then coupled this data with the closing value of the Dow Jones Industrial Average for the previous year.
Rather than providing you with data for each year, we have selected only a few to illustrate our point.
Calendar year 2020 – “COVID-19 pandemic”. Stocks came out strong as the S&P 500 rose 4.81% to close at a record high on February 19, 2020. However, we are all painfully aware of the profound change in our lives brought on by the pandemic. Equity investors were not spared from that date until March 23, 2020, a mere twenty-three trading days, the S&P 500 fell nearly 34% from 3,386 to 2,237 .
Ironically, as the pandemic raged and the US economy ground to a halt, the market bottomed out, recouping its losses on August 18, 2020 and actually ending the year at 3,756, up 10.92% from the previous high and 67.90% from the March 23 low.
Calendar year 2019 – “China trade war”. After a horrible end to 2018, the Standard & Poor’s 500 (S&P 500) started the year at 2,507, then climbed more than 20% to close at a record high of 3,014 on July 15, only to pull back heated rhetoric between Presidents Donald Trump. and Xi of China regarding Chinese trade and theft of intellectual property from US companies doing business in China. Is this five percent correction the start of something more severe? Time will tell us. However, as illustrated below, the past is compelling evidence that if the market decline persists, it would be wise to focus on your goals rather than the day-to-day noise of the financial markets. Also, check out our “End Result” below.
Calendar year 2014 – “The Ebola crisis”. The Standard & Poor’s 500 index started the year at 1,848, then rose 8.76%, closing at 2,010 on September 10, 2014. However, as the possibility of a global Ebola outbreak grew settled, shares fell 7.36% over the next 25 trading days. . Once investors realized this was a low-probability event, the S&P 500 recouped all of those losses by the end of calendar 2014, closing at 2,058.90 for a gain of 11 .42%.
Calendar year 2011 – “The sovereign debt crisis in Europe”. The Dow Jones Industrial Average started 2011 at 11,577 and, at market close last Wednesday, closed at 13,175 for a total gain of 13.80% over that period.
Calendar year 2001 – “World Trade Center / Pentagon terrorist attacks”. The Dow Jones Industrial Average (DJIA) started 2001 at 10,786 and, due to the severity of the September 11 attacks and the resulting damage to the psyche and economy of the United States, ended that year to 10,021 for a loss of 7.09%. Please note that today stocks remain more than double this level.
Calendar year 1991 – “Global recession”. We might add that this global recession was caused in large part by the First Gulf War in response to Iraq’s invasion of Kuwait in 1990 which led to soaring energy prices. The DJIA started 1991 at 2,633 and closed that year at 3,168 for a gain of 20.32%.
Calendar year 1981 – “Interest rates have remained high.” That year, measures taken by then Federal Reserve Chairman Paul Volcker beginning in 1979 to limit the growth of the money supply began to have an impact on the high interest rates that , in the short term, ushered in a brief but steep recession and which, in the long term, the bull market in stocks that ended in the early 2000s and in bonds, which remains intact to this day. The DJIA opened that year at 824, but closed ten years later at 2,633 for a total gain of 219.40%.
Calendar year 1971 – “Wages and prices freeze”. In order to stem the rising tide of inflation, a battle that will take ten years to win, President Richard Nixon imposed a wage and price freeze in 1971. The DJIA began 1971 at 838 and ended that decade at 824, for negligible loss. 1.71%, a lost decade. However, this lost decade was the predecessor to the great bull market of the 1980s and 1990s.
Calendar year 1961 – “Construction of the Berlin Wall”. What could be a creepier title? Americans were in the throes of the Cold War. Don’t forget “duck and blanket”. Remember bomb shelters. The DJIA closed 1960 at 615 and despite this as well as the assassination of President John F. Kennedy, race riots and the escalation of the Vietnam War, closed this tumultuous period at 839 on December 31, 1970 for a gain of 36.39%, not too bad.
Calendar year 1951 – “Tax on Income and Excess Profits”. How anti-growth, since Congress passed legislation adding a 5% tax to corporate tax rates as well as an excise tax on alcohol, tobacco, gasoline, and automobiles. The Dow Jones opened this year at 239, closing ten years later up 156.66% at 615.
Calendar year 1941 – “The Japanese attack on Pearl Harbor”. How frightening. We tend to think of historical events in the context of how information is disseminated today. However, in the early 1940s, very few Americans had televisions and telephones. Obviously there was no internet. The threat to our continent was perceived as real and possibly imminent. That said, the DJIA opened in 1941 at 130 and closed ten years later at 239, nearly double that. Incidentally, the Dow Jones closed on December 6, 1941 at 116 and has closed at or above that level every year since.
Calendar year 1931 – “The unemployment rate is soaring / American banks are collapsing”. In hindsight, probably the stock most tied to the economy and the returns of the Dow Jones Industrial Average reflect it, opening the year at 244 and then falling 83.13% to 41.22 on July 8, 1932. , the Dow Jones recovered to 130 by the end of 1940. In fact, it took nearly twenty years for the Dow Jones to significantly surpass that 1930 high.
THE ESSENTIAL – The purpose of this exercise is to illustrate the historical fact that there is always a seemingly valid reason not to invest and why “it’s different this time”. While it might be different this time around, it likely isn’t. However, if you want to “build that ark,” do so with only a relatively small portion (less than 25%) of your wallet. Anything else would come with other risks.
Please note that all data is for general information purposes only and does not constitute specific recommendations. The opinions of the authors do not constitute a recommendation to buy or sell the stocks, the bond market or any security contained therein. Securities involve risk and fluctuations in principal will occur. Please research any investment thoroughly before committing any money or consult your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell securities for itself which it also recommends to its clients. Consult your financial advisor before making any changes to your portfolio. To contact Fagan Associates, please call (518) 279-1044.