This time last year stringent measures in the U.S. were being taken to slow the spread of Covid and “flatten the curve.” The lockdowns and shelter-in-place orders dealt a body blow to U.S. economic activity.
Investor reaction was swift, and the first bear market since 2009 descended upon investors. Volatility was intense. In just one day, the Dow Jones Industrial Average lost nearly 3,000 points, or 12.9% (March 16, 2020 St. Louis Federal Reserve DJIA data). That one day accounted for over 25% of the Dow’s nearly 11,000 point peak-to-trough loss.
Since bottoming in March of last year, the Dow Jones Industrial Average advanced an astounding 77.8% through March 31 of this year. (Yahoo Finance)
Let’s back up and take a broader view
If we review the six longest bull markets since WWII, the S&P 500’s advance over the first year of this recovery tops all other prior bull markets. In second place at 72.4% is the bull market that began in March 2009. That run lasted into February 2020 (St. Louis Federal Reserve).
If we gauge the first year of the 1990s bull market, the S&P 500 had advanced 32.8% during the same period. It’s an excellent performance for a period that runs about one year, but it would place the start of the long-running 90s bull market in last place among the six longest periods since WWII.
Where are we headed from here? You’ve heard me say that no one has a crystal ball. No one can accurately and consistently predict what may happen to stocks.
Since World War II, there have been six other bear-market sell-offs of at least 30%, similar to what we experienced in March of 2020. In each case, the market posted strong returns in the first year, with an average gain of 40.6%. Gains ran into year two, with an average increase of 16.9%; however, the average pullback during those six periods: 10.2%. (LPL Research)
So, let’s not discount the possibility of a bumpy ride this year.
Treasury bond yields have jumped as the government has embarked on an expensive $1.9 trillion stimulus package, and talk of new spending from Washington is gaining momentum. Further, bullish enthusiasm can sometimes spark unwanted speculation.
Might the economy overheat and spark an unwanted rise in inflation? Might rising bond yields temper investor sentiment? Up until now, investors have focused on the rollout of the vaccines, reopening of the economy and the benefits these are providing.
Just as the investment plan takes the emotional component out of the investing decision when stocks are falling, it also erects a barrier against the impulse to load up on riskier investments when shares are quickly rising.
Life is always changing, and when it does, adjustments may be appropriate. Ups and downs in stocks are rarely a reason to make emotion-based decisions in our portfolios.
April 2021
Content in this material is for general information only and 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. No strategy assures success or protects against loss.
