On July 19, 2021 the National Bureau of Economic Research (NBER), the official body that declares recessions and their end, published a document stating that the latest recession ended in April 2020. NBER is not quick in their research, but they are thorough. What this means is that, according to NBER, the United States economy entered a new economic expansion in April 2020. This puts us at over
15 months into this economic cycle.1
Economic cycles can help us understand many things. There are always going to be unique circumstances surrounding each economic cycle and this one is no different. COVID-19 has been an ongoing theme despite a quick stock market turn-around. Political and social risks are also at the forefront.
The stock market is still bullish in light of low global recession risk. During early economic expansion and prior to it peaking, there tends to be less risk of recession. The past economic cycle had multiple cycles of risk, but at the moment recession risk, which is where stock markets get hurt the worst, is the lowest in the past 10 years.
Chart: NDR Global Recession probability model and the corresponding stock/bond ratio that corresponds.
This is meaningful as investors try to make sense of what may be in store for the markets. Despite the ongoing pandemic and risks, the economy is just behaving normally.
At this point in an economic expansion, it is not unusual for uncertainty to be the talk of news outlets. Investors want to know what to expect next, especially if they have enjoyed a period of outsized returns. Will inflation take hold and squeeze the ability for returns? When will the next correction happen? Is there going to be a double-dip recession? There are no shortage of questions that have significance to investors. The truth is that these are not likely to have answers until something new develops. They are all risks that exist in normal markets.
Monetary policy will likely need to begin to adjust to a normalizing economic environment at some point and there will be corrections in the market. These are circumstances that well positioned investors should fear because they are natural necessities in the market to set up the next potential for returns.
An investor with a well-defined process to make investment decisions should be able to weather each of the next market moves well in a normal economic cycle. So far, the evidence does not indicate that this time is any different in a substantial manner. As such, remaining vigilant in weeding out the facts from the headlines will likely produce a more robust investment strategy.
Worrying about all the things that could happen is likely to produce anxiety and stress that can be a distraction to everyday life. As the summer wears on and we enter a time of seasonal weakness, it is a good time to make sure that your strategies are ones that you are happy working through the next few months, relying on discipline to make sure you avoid big mistakes.
Investment Advisory Services offered through Trek Capital Management LLC., an (SEC) Registered Investment Adviser.
Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. Trek 21-90