How does this decline compare to previous recessionary ones?

[MichaelB]

Awfully convenient to only use data since 1988. Try starting in 1974 and you get a different result.

Here’s a chart of the effective federal funds rate from 01/74 thru 09/82. https://fred.stlouisfed.org/series/FEDFUNDS

This chart does not show how high rates got, it shows how fast they were raised. It took 6 years to go from 5% to 17%, 1974 to 1980. They then fell to 10% for a few months, and increased once again from (approximately) 9% to 18% in less than a year.

Without getting into the data it looks like the current rate hike matches the one in late ‘80 in speed for the first 6 months. There’s little likelihood it will get close to the levels of the early 80’s, as the recession it created was brutal. In addition, inflation was chronic then, and there’s no evidence it is similar now.

 

[jldavid47]

There’s little likelihood it will get close to the levels of the early 80’s, as the recession it created was brutal.

And short.

Better a brutal and short recession than years of destructive high inflation.

 

[REWahoo]

I don't want to be left out!

Federal Funds Rate - 62 Year Historical Chart. Shows the daily level of the federal funds rate back to 1954.

 

[aja8888]

I don't want to be left out!

Federal Funds Rate - 62 Year Historical Chart. Shows the daily level of the federal funds rate back to 1954.

Now that's a chart!

 

[Lsbcal]

Since I am interested in intermediate bonds my focus would be on maybe the 5 year Treasury rate of increase which could be different then the Fed Funds rate. Now I know that the Fed controls the short rates (hence the recent posts) but they only partially control the longer out bond rates. They might have more control over bond rates given quantitative tightening nowadays.

Anyway, I agree the rate of increase is very dramatic and disturbing.

Here is a chart comparing the Fed Funds rate and the 3 month Treasury and 5 year Treasury:

You can see that the 5 year Treasury reacted well ahead of the initial Fed Funds rate. And who knows how much is anticipated in the current rate. I would guess a lot of Fed tightening is already in the current bond rates.

 

[Lsbcal]

Oct 30 update.

We are 300 days from the previous market high, down -18.7%. Nice recent rally that gets the SP500 into the area of previous recessionary declines. My guess is the market has already discounted a minor business slowdown. Not a very brave prediction though.

 

[milford]

Oct 30 update.

We are 300 days from the previous market high, down -18.7%. Nice recent rally that gets the SP500 into the area of previous recessionary declines. My guess is the market has already discounted a minor business slowdown. Not a very brave prediction though.

Look for more headwinds coming up as the latest PCE report shows inflation isn't subsiding, Feds are going to continue raising interest rates until something collapses which hopefully breaks the inflation cycle, if not, we're going to be in world of hurt.

 

[freedom2022]

Resemblance 2008 decline.

 

[CarbonaNotGlue]

Yep, that tracking of the 2008 decline is disconcerting to say the least.

 

[Koolau]

Resemblance 2008 decline.

Yep, that tracking of the 2008 decline is disconcerting to say the least.

What is it they say (anyone know who "they" are?):

"Those who don't know history are doomed to repeat it."

It feels a lot like the 70's/80's all over again. Unfortunately, I don't see anyone like we had back then to get us out of it but I could be wrong so YMMV.

 

[cnocmmz]

Look for more headwinds coming up as the latest PCE report shows inflation isn't subsiding, Feds are going to continue raising interest rates until something collapses which hopefully breaks the inflation cycle, if not, we're going to be in world of hurt.

Wait until the midterms, depending outcome will even out the market in my view, at least it always seems too.

 

[W2R]

Yep, that tracking of the 2008 decline is disconcerting to say the least.

That's for sure! But then, most of us in this forum got through the 2008 decline in reasonably good shape, so my guess is that somehow we will make it through this mess as well.

(I know, I know, just call me "Little Mary Sunshine".... )

 

[Lsbcal]

UPDATE: After 11 months into a bear market with still no recession. SP500 down -15.1% not including dividends which add about 1.4%. So maybe a -14% total return YTD.

Unemployment holding very low and constant. Yield curve strongly inverted (3 month - 10 year). What to make of this?

 

[audreyh1]

[-]FWIW my investments peaked at 11/4/22 last year which would put us at over 12 months of decline. Did you have a particular start date picked, or did you just set it to the beginning of this year?[/-]
Never mind, I see the S&P500 really did peak on the first trading day of 2022, Mon Jan 3.

Thanks for the update!

My crystal ball is opaque, so I have no idea what to make of anything. I’m just watching from the sidelines with the popcorn.

I do note that the yield curve (10-2) is far more inverted than before the last two big recessions this century. Since 1981 in fact. https://fred.stlouisfed.org/series/T10Y2Y

 

[NW-Bound]

Unemployment holding very low and constant. Yield curve strongly inverted (3 month - 10 year). What to make of this?

A recession is coming, a recession is coming.

Note how when a recession finally happened, the yield curve already corrected itself.

 

[audreyh1]

A recession is coming, a recession is coming.

Note how when a recession finally happened, the yield curve already corrected itself.

Yep!

 

[Irishgirlyc58]

Note how when a recession finally happened, the yield curve already corrected itself.

Is that good or bad?

 

[Montecfo]

The debt market pointing toward recession, yes. And we really need one.

 

[Koolau]

[-]
My crystal ball is opaque, so I have no idea what to make of anything. I’m just watching from the sidelines with the popcorn.

I pitched my crystal ball a long time ago. I'm now using a Magic 8-Ball!

 

[NW-Bound]

Is that good or bad?

A correct yield curve is good, but a recession is of course bad.

What I care about is what the market looks like for the next 2 years.

When do I go into the "buy, buy, buy" mode and drive my stock AA up to 85%? That's the million-dollar question.


PS. Here's what I think I will do. Keep selling OTM call options on bear market rallies but set the strike price lower than I usually do. This should cause more assignments, and bring my stock AA down from its current 60%. Should I go lower than 40%? Have not gone that low since 2008 during the Great Recession.

 

[Samsung4321]

Note how when a recession finally happened, the yield curve already corrected itself.

Yield curve is reputed to be a 'leading indicator' of recession.
https://www.investopedia.com/terms/i/invertedyieldcurve.asp

 

[NW-Bound]

Sure. Now that it happens, what should each of us do? Sell now, and buy back lower later?

Now, they say that if everybody knows something, then it is not worth knowing. In other words, if everybody knows, and has been already selling, then we are at the low already, meaning it's too late to sell.

But is that true? What if people know it, but don't want to act on it, or are too afraid to do it? So, there's still time to sell stocks.

Heh heh heh... It's not that simple, is it?

 

[Koolau]

Sure. Now that it happens, what should each of us do? Sell now, and buy back lower later?

Now, they say that if everybody knows something, then it is not worth knowing. In other words, if everybody knows, and has been already selling, then we are at the low already, meaning it's too late to sell.

But is that true? What if people know it, but don't want to act on it, or are too afraid to do it? So, there's still time to sell stocks.

Heh heh heh... It's not that simple, is it?

It's very simple. Stay the course. Follow the plan. We've seen it all before. YMMV

 

[NW-Bound]

It's very simple. Stay the course. Follow the plan. We've seen it all before. YMMV

Everyone's course is different.

Some try to swerve around a pot hole, some drive over it.

 

[Samsung4321]

not that simple, is it?

I'm simply "all-in" cash. I don't need any more return, nor loss; but won't refuse free money. A free CPI adjusted Age Pension awaits the demise of my capital.