Happy birthday economic recovery
As June came to a close, the current economic recovery and expansion turned eight years old, the third longest since the end of WWII. That’s according to data compiled by the National Bureau of Economic Research (NBER), which marked the end of the Great Recession in June 2009.
A quick explanation–the NBER is the arbiter of recessions and expansions for the U.S. economy. It bases its calls on data that includes employment, sales, income, and industrial production.
In a vacuum, eight years may not mean very much to the average person; so I will offer some perspective.
Including the current economic recovery, there have been twelve such recoveries since WWII.
The eight-year, or 96-month-long expansion, has only been exceeded by the expansion that began in 1991 and lasted 120 months, and the expansion that began in 1961, which lasted 106 months, or nearly nine years.
The shortest one managed to survive only 12 months. It began in 1980 and fell victim to then Fed Chairman Paul Volker’s decision to use monetary policy–sharply higher interest rates–to crush years of high inflation.
With the short explanation out of the way, you may be asking, “What does that mean to me and my investments?” Or, “The current recovery isn’t young anymore. Is a recession around the corner?”
Bear markets correlate closely with recessions, according to data going back to the mid-1960s (St. Louis Federal Reserve S&P 500 data, NBER).
Expansions eventually come to an end–that’s a given. But they don’t die of old age. Instead, they historically come to an end due to economic excesses, i.e., the tech boom of the 1990s or the housing boom of the last decade. Or, the Federal Reserve raises interest rates too high too quickly, discouraging lending and consumer/business spending.
One of the hallmarks of the current expansion has been its slow and boring pace. For many who have seen wages stagnate or haven’t experienced the benefits from the modest-at-best expansion, there is one silver lining. The slow pace of the recovery has failed to stoke the euphoria in real economic activity that can sow the seeds of dangerous excesses.
It has also led to a super cautious Fed, that has been slow to tap on the monetary brakes.
Economist have done a poor job of calling turning points in the business cycle. So, I won’t attempt to predict when the next recession will set in. I'm not in the prediction business. I'm in the advice business.
What I can say is that most leading economic indicators suggest that the odds of a near-term recession are low. Put another way, economic growth creates profit growth, which is a tailwind for stocks, even as rates gradually rise.
We can never discount unexpected volatility. But the investment plans we’ve recommended for our clients takes unexpected turbulence into account.
Remember, timing the ups and down in stocks is rarely profitable longer term. In reality, it only delays the day you reach your financial goals.
Table 1: Key Index Returns
|MTD %||YTD %||3-year* %|
|Dow Jones Industrial Average||+1.6||+8.0||+8.3|
|S&P 500 Index||+0.5||+8.2||+7.3|
|Russell 2000 Index||+3.3||+4.3||+5.9|
|MSCI World ex-USA**||-0.1||+10.9||-1.9|
|MSCI Emerging Markets**||+0.5||+17.2||-1.3|
|Bloomberg Barclays US Aggregate Bond Index||-0.1||+2.3||+2.5|
Source: Wall Street Journal, MSCI.com, CNBC, Morningstar
MTD returns: May 31, 2017 - June 30, 2017
YTD returns: December 30, 2016 - June 30, 2017
We hope you've found this monthly update to be educational. If you have any questions and would like to discuss your portfolio or other important financial matters, please give us a call at (330) 836-7000 or schedule an appointment here.
Many happy returns on life,
Jonathan Torrens CFP®
President and Chief Investment Officer
TCM Wealth Advisors
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The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.