How does this decline compare to previous recessionary ones?

[Phroig]

Real learning took place outside of class.

This explains why my students were eager to get back to campus, but didn’t actually show up to class.

 

[RobLJ]

For what it is worth, P/Es are repricing to the norm, after what I viewed as apparently irrational pricing the last 6 years, including or especially coming out of COVID, in which (to me) the market seemed to dismiss any risk. I, of course, am not wiser than the all-seeing market.

Now risks are being taken (somewhat) seriously, if temporarily. And we're only down 18%. Deflation was driven for 30 years by imports (China), underpriced oil/energy (in the US, driven by banks floating bonds for non-free cash flow positive producers; this changed after banks got burned by the 3rd time during the COVID crash), and beating down the low-skilled workforce by immigration and mechanization/computerizations. Now, these macro trends are readjusting, and we are all "surprised" (including especially me) with COVID as the fulcrum.

I have no idea where this is going, although I do think inflation will eventually adjust downward, I have no idea when or at what point. I sold marginally (1/3) on the way up the last 4 years, and bought in late January and two weeks ago, before I went hiking in Canyonlands for the last 8 days. I'll look at putting another 10% of cash to work next week or later, since I look for 7-8% down increments to put cash to work, with 10-15% of my cash at a time. If you keep everything in stocks and don't withdraw, you will almost surely outperform me for your heirs over the long or short term, unfortunately no-one informs us what the term will be or we would all be in a rocket with Musk to Mars.

On the drive back from Canyonlands, when I didn't listen to music, it was interesting that the pundits were talking, suddenly, about stagflation and energy prices (and formula shortages, rightfully, if you have a baby on formula) the whole time on the 750 mile drive back to Reno and ignoring unemployment of 3.5% and other positive signs. Will energy continue to go up? I don't know but the pundits seem to assume it.

Stagflation, the new talking point, is a risk, to be sure, if we go into recession, although stagflation at unemployment of 3.5% is an interesting phenomenon. But almost none of the pundits, curiously, were talking about it........12 months ago (surely a few were). Which reinforced that no-one, including and especially me, knows where the macro-economy is going, despite the new convictions in the pundits on the media. Bust and gloom do seem to be the norm for manic depression of both the media and investors (including me), and the cycles can last a lot longer than one would think, so that is a warning meaningful for those who experienced 2002 and 2007, and the few who started retirement in the late 60's.

I do not think this will be worse than my Okie grandfather's Great Depression, however, although he didn't own stock, he was picking cotton. As a final perhaps controversial thought, I also do not think repricing PEs to the norm is necessarily a bad thing--unless you and I compare our current portfolios to 6 months ago. It in fact might be a good thing, although markets in the past have a sad tendency to swing below normal PEs (gasp!)

 

[Lsbcal]

Regarding PE's, I occasionally record the PE's for various Vanguard asset class indexes:

The excessive PE's of the growth stocks have come down quite a bit. The value stock PE's are very low.

 

[NW-Bound]

... I do not think this will be worse than my Okie grandfather's Great Depression, however, although he didn't own stock, he was picking cotton. As a final perhaps controversial thought, I also do not think repricing PEs to the norm is necessarily a bad thing--unless you and I compare our current portfolios to 6 months ago. It in fact might be a good thing, although markets in the past have a sad tendency to swing below normal PEs (gasp!)

Worse than the Great Depression, the time when stocks lost 80% (75% after adjusting for deflation)?

It's too early for that comparison, when we are not even officially in a bear market yet, which requires -20% down.

By the way, in 2008 we did talk a lot about the Great Depression on this forum. Things were pretty bad.

I was not here on this forum in 2002, so I do not know if people would have made the comparison.

 

[copyright1997reloaded]

Regarding PE's, I occasionally record the PE's for various Vanguard asset class indexes:

The excessive PE's of the growth stocks have come down quite a bit. The value stock PE's are very low.

While it is too early to declare victory, I've notice my slaughtered small caps have started to have a little bit of relative strength.

 

[COcheesehead]

I’ve seen a lot of data saying the market is back to fair value, but that is IF earnings remain stable. The market can also overshoot fair value or earnings could drop. So there’s that.

 

[Phroig]

Looks like both growth and value small caps are a bit depressed. It also seems like the multiple for a class tends to persist.

 

[NW-Bound]

The late Bogle warned us that P/E reversion would take place, but he never claimed he knew when it would happen, only that sometime in the next 10 years. And this would happen when interest rate rose back to the norm, which meant bonds would tumble too.

I remember he said that the investment environment was tougher than he ever witnessed in his life. Still, he said there was not much one could do, other than to expect lower returns ahead.

Bogle warned us about this back in 2016 or so. The market kept climbing, and people just laughed him off. But again, Bogle never claimed to know when it would take place, just that one should not be surprised when it happened.

 

[ncbill]

So how many of these posts include the effects of dividends?

Especially when you're talking about recovery back to a certain level, you need to include the effect of dividends payments.

E.g. the 1929 crash didn't take nearly as long to get back to even as most think just looking at price level given the higher dividends paid by stocks back then.

 

[NW-Bound]

Yes, dividends certainly help, particularly in the past when the payout was a lot higher.

In the period 1970-1990, the average yield was 4%. During the Great Depression, dividend yield reached 14%.

However, in the last 2 or 3 decades, the yield was barely above 2%. Hence, when talking about periods of 2 or 3 years, the dividend contribution is not that much when we consider stock price drop of 50%.

PS. Additionally, when the dividend is about the same as inflation rate and the two cancel each other out, we can safely ignore both for the purpose of stock recovery time discussions.

 

[24601NoMore]

I’ve seen a lot of data saying the market is back to fair value, but that is IF earnings remain stable. The market can also overshoot fair value or earnings could drop. So there’s that.

Key word being "if".

There's a growing expectation that go-forward EPS results are not going to match current estimates - perhaps by a fairly significant amount.

We've already started to see the impact of raging PPI and CPI in Retail, with Target AND Walmart getting crushed pretty hard last week - largely on lower than expected EPS (albeit, and excessive inventory).

Most of the big Wall Street firms seem to be stubbornly clinging to their prior SPX EPS estimates..but a bunch of the folks I follow closely and respect are pretty much all saying these estimates are currently too high and will come down "soon"..guess we'll see..

 

[Lsbcal]

So how many of these posts include the effects of dividends?

Especially when you're talking about recovery back to a certain level, you need to include the effect of dividends payments.

E.g. the 1929 crash didn't take nearly as long to get back to even as most think just looking at price level given the higher dividends paid by stocks back then.

Yes the chart I posted did not include dividends as noted on the title. You can certainly add a few percent to those curves.

But the intention of the chart was not to show when you would break even. Rather the intention was to show how bear markets evolve over just 2 years or so. For me, it is to remind myself that what happens in a few weeks or even a few months is not necessarily the trend.

 

[cyber888]

Earnings like Walmart, Target, and today Snap, Abercombie, Best Buy projecting worst future earnings throughout 2022 .. the market won't bounce with those future slow down in earnings projections. This is not the bottom yet. I don't think future earnings for Q2, Q3, Q4 is stabilized with high inflation + a rising interest rate - the fastest rate hike in years.

No Fed Put until probably end of 2023, so stocks will continue meeting down-ward pressure. As long as the Fed continues 7 - 8 rate hikes .. probably 3 of those will be 0.5% up, I don't see a big bounce.

The Fed also begins Quantitative tightening next month, sucking liquidity out of the market. Future earnings projections will not help.

Key word being "if".

There's a growing expectation that go-forward EPS results are not going to match current estimates - perhaps by a fairly significant amount.

We've already started to see the impact of raging PPI and CPI in Retail, with Target AND Walmart getting crushed pretty hard last week - largely on lower than expected EPS (albeit, and excessive inventory).

Most of the big Wall Street firms seem to be stubbornly clinging to their prior SPX EPS estimates..but a bunch of the folks I follow closely and respect are pretty much all saying these estimates are currently too high and will come down "soon"..guess we'll see..

 

[street]

Thans for charts and like others have said I also appreciate them. I will be following this to see what is happening in comparison.

 

[harllee]

Thanks for this chart --it is helpful. In the 2008 great recession I discovered that I personally could not tolerate the aggressive asset allocation I had in 2008--I had too much in the stock market and not enough cash. I held on through 2008-09 and did not sell anything but I was very stressed and lost sleep. As soon as things recovered I reassessed my asset allocation, reduced my stock exposure and substantially increased my cash (in CDs etc). Since that time I don't worry much about the markets. I rarely even look at the numbers.

 

[Markola]

^^^^^ “Sell down to the sleeping point.” - J.P. Morgan

 

[Koolau]

^^^^^ “Sell down to the sleeping point.” - J.P. Morgan

Heh, heh, I bought UP to the sleeping point a long time ago - but your point is well taken.

 

[harllee]

^^^^^ “Sell down to the sleeping point.” - J.P. Morgan

That is exactly what I did after the 2008 Great Recession. That was a scary time for me and I lost sleep. After things recovered I reduced my equities and I now have a lot of cash (in CDs etc) and I am sleeping fine. Not having enough cash to live on was a major problem for me in 2008.

 

[Koolau]

^^^^^ “Sell down to the sleeping point.” - J.P. Morgan

I think the problem is that folks don't realize they have a sleeping problem while stocks are on a tear. It's once they've lost 50% of their value that folks can't sleep. By then, selling is just locking in the loss (or so I'm told.) YMMV

 

[ERD50]

So how many of these posts include the effects of dividends?

Especially when you're talking about recovery back to a certain level, you need to include the effect of dividends payments.

E.g. the 1929 crash didn't take nearly as long to get back to even as most think just looking at price level given the higher dividends paid by stocks back then.

And also inflation/deflation. The 'Great' Depression experienced deflation for a time, $1 would buy more, so those dollar-denominated drops aren't quite as bad as they appear.

From investopedia:

The deflation that took place at the outset of the Great Depression was the most dramatic that the U.S. has ever experienced Prices dropped an average of nearly 7% every year between the years of 1930 and 1933. In addition to a drop in prices, there was also a dramatic drop in output during the Great Depression.

That meant $1 could buy about 22% more 'stuff' after 3 years of 7% deflation. I do recall my Dad saying "Cash was King" during the depression.


Not any sort of criticism of the chart, it's useful and informative as is, just an observation.

-ERD50

 

[Lsbcal]

The numbers in my chart for the 1930's extend from September 1929 to July 1932. So yes, there was deflation for sure and maybe something like 20%. So maybe the market was down "only" 50% by July 1932 (bottom of the decline) when one considers deflation and dividends.

Still the message in this chart is primarily how long it takes to decline and how variable the decline would be. Plenty of sleepless nights if you were not set in your risk tolerance. And in the 1930's you'd be seeing a lot of unemployment (maybe even your job) and scary headlines. In today's hyper news environment it could be quite disturbing.

 

[daylatedollarshort]

We realized our risk tolerance was pretty low after 2008, and had a job loss along with our stocks going down. Now the money we need to pay our retirement expenses is more than funded completely by Social Security, pensions and a TIPS ladder. Most of the rest was in stock funds, bond funds and stable value. At the beginning of this year I sold the bond funds and put most of that money into short term Treasuries until the Fed's interest rate increases level off. They aren't making a whole lot, but at least they aren't losing money. I sold off the international stocks before the war broke out, and moved what we did have left in stocks to a dividend fund that has only gone down around 4%. Overall it hasn't been too bad of a year for us so far.

DH had more of FOMO than I did when stocks were going up, because we had cut our allocation back after 2008, but he is over that now. I have pointed out that if we lost 30% portfolio value from market losses, plus another 8% to inflation, plus any withdrawals, that would take a long time to recover.

 

[FIREarly]

Sometimes when the market/stock is red is a good time to buy.

DCA!!

 

[bookman51]

No Panic

I listen to an economist out of the Omaha office of the Federal Reserve on a webinar recently. I am an agricultural landowner. Agricultural land prices are up. Cash rents are up. Repayments of farm loans are up. While the Ukraine War is creating uncertainty, it is also creating demand for U.S. agricultural products. I don't want to sound like war is good business, and I would settle for less income if the war would end. I hope soon with Russia withdrawing, but I doubt it.

Inflation is the result of demand exceeding supply, but it also means people with pent up money to spend after Covid are wanting to buy. Current inflation in large part is due to supply chain problems. They may get solved but one factor is what is happening with Covid in China. In the uncertainty, the energy companies are not reinvesting, although their profits are up. The economist made the point that the energy market is international and not dependent by any means on what we do here in the United States.

I remember the DOW being less than 8,000 in 2008, so unless one bought in at 36,000 or so, the DOW in the low 30,000s still looks pretty good. The Federal Reserve is shooting for 2% inflation or less, and they have aways to go. I think solving supply chain problems will have more impact than raising the Federal Reserve rate. I am staying the course. My 2 cents anyway, and your mileage may vary.

 

[eyenitnoy]

One thing to be mindful of when comparing current peaks to those from days of old is the entirely different world of trading today compared to anything pre-2000.

Now the individual investor, trading online from any of a number of different platforms, has a much bigger impact than they ever did in the old days.

It's a different world now.