Although most major indices are within fifteen percent of all-time highs, given the current global geopolitical events, there exists an elevated level of stress as it pertains to the financial markets. With this in mind, we present a piece from GE Asset Management, entitled “86 Possible Reasons Why Investors May Have Avoided The Stock Market.” This data is sourced from “The History Channel” and specifies one news topic that made headlines during each calendar year beginning in 1926 that may have made you alter the way you invest or perhaps caused you to stop investing all together. We then coupled this data with the closing value of the Dow Jones Industrial Average for the prior year. Rather than provide you with data from each and every year, we selected just a few to illustrate our point.
Calendar Year 2020 – “COVID-19 Pandemic.” Stocks came out of the gate 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 about by the pandemic. Stock investors were not spared as from that date thru March 23, 2020, a mere twenty-three trading days, the S&P 500 tumbled nearly 34%, falling from 3,386 to 2,237. Ironically, as the pandemic raged and with the U.S. economy shut down, the market bottomed, recouping its losses by August 18, 2020 and actually finishing the year at 3,756, up 10.92% from the prior high and 67.90% off the March 23 bottom.
Calendar Year 2019 – “China Trade War.” After a horrendous close to 2018, the Standard & Poor’s 500 (S&P 500) began the year at 2,507 and then bolted more than 20% higher to close at a record high 3,014 on July 15 only to pull back on heated rhetoric between Presidents Donald Trump and Xi of China regarding trade and the theft of intellectual property by the Chinese from American companies doing business in China.
Is this five percent correction the beginning of something more severe? Time will tell. However, as illustrated below, the past is convincing evidence that should the market decline persist, it would be wise to focus on your objectives rather than the day to day noise of the financial markets. In addition, see our “bottom line” below.
Calendar Year 2014 – “The Ebola Crisis.” Standard & Poor’s 500 began the year at 1,848 and then subsequently rose by 8.76%, closing at 2,010 on September 10, 2014. However, as the potential for a global Ebola outbreak set in, stocks tumbled by 7.36% over the next 25 trading days. Once investors realized that this was a low probability event, the S&P 500 recovered all of those losses by the end of calendar year 2014, closing at 2,058.90 for a gain of 11.42%.
Calendar Year 2011 – “Europe’s Sovereign Debt Crisis.” The Dow Jones Industrial Average began 2011 at 11,577 and, as of the market close this past Wednesday, closed at 13,175 for a total gain of 13.80% over this period.
Calendar Year 2001 – “World Trade Center / Pentagon Terrorist Attacks.” The Dow Jones Industrial Average (DJIA) began 2001 at 10,786 and, due to the severity of the attacks on 9-11 as well as the ensuing damage to the psyche and economy of the United States, ended that year at 10,021 for a loss of 7.09%. Please note that today, stocks remain more than twice that level.
Calendar Year 1991 – “Global Recession.” We might add that this global recession was caused in great part, due to Gulf War I in response to the invasion of Kuwait by Iraq during 1990 that resulted in a spike in energy prices. The DJIA began 1991 at 2,633 and closed that year at 3,168 for a gain of 20.32%.
Calendar Year 1981 – “Interest Rates Remained Elevated.” This was the year that steps taken by then Chairman of the Federal Reserve Paul Volcker, beginning in 1979 that limited growth in money supply, began to have an impact on high interest rates which, over the short term, ushered in a brief, but steep recession and which, over the long-term the bull market for stocks that ended during early 2000 and for bonds, which remains intact to this day. The DJIA opened this year at 824, but closed ten years later at 2,633 for a total gain of 219.40%.
Calendar Year 1971 – “Wage-Price Freeze.” In order to stem the rising tide of inflation, a battle that would take ten years to win, President Richard Nixon imposed a freeze on wages and prices during 1971. The DJIA began 1971 at 838 and ended that decade at 824, for a negligible loss of 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 – “Berlin Wall Built.” What could be a more frightful headline? Americans were in the throes of the Cold War. Remember “duck and cover.” Remember bomb shelters. The DJIA closed 1960 at 615 and despite this as well as the Assassination of President John F. Kennedy, the race riots and the escalation of the Vietnam War, closed that tumultuous time at 839 on December 31, 1970 for a gain of 36.39%, not too shabby.
Calendar Year 1951 – “Excess Income and Profits Tax.” How anti-growth, as Congress passed legislation adding a 5% tax to corporate tax rates as well an excise tax on alcohol, tobacco, gasoline and automobiles. The Dow opened this year at 239, closing ten years later 156.66% higher at 615.
Calendar Year 1941 – “Japanese Attack Pearl Harbor.” How frightening. We tend to think of historical events in the context of how information is disseminated today. However, during the early 1940’s, very few Americans had televisions and telephones. Obviously there was no internet. The threat to our mainland was perceived as one that was real and perhaps imminent. That said, the DJIA opened up 1941 at 130 and closed ten years later at 239, for nearly a double. As an aside, the Dow closed December 6, 1941 at 116 and closed at or above that level every year since.
Calendar Year 1931 – “Unemployment Rate Soars / U.S. Banks Collapse.” In hindsight, probably the headline that is the most related to the economy and the returns of the Dow Jones Industrial Average reflects this, opening the year at 244 and subsequently falling by 83.13% to 41.22 on July 8, 1932. Moreover, the Dow only recovered to 130 by the end of 1940. In fact, it took nearly twenty years for the Dow to substantially exceed that 1930 high.
THE BOTTOM LINE – The point of this exercise is to illustrate the historical fact that there is always a seemingly valid reason why not to invest and why “it’s different this time.” Although perhaps it may be different this time, it is likely that it is not. However, if you wish to “build this Ark,” do so with only a relatively small (less than 25%) of your portfolio. Any more would come with other risks.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.
