How does this decline compare to previous recessionary ones?

[Lsbcal]

I've heard this point of view ( to increase fixed income % as we age) , but the counter to that would be yes, we have less years living so the money doesn't have to last as long and also the money at that point isn't for us, but for our beneficiaries.

Also, look at any financial calculator the % success rate for say a 50/50 portfolio versus a 100 % stock portfolio is the the same, but the all stock has a significantly higher ending balance. I've run dozens of trials on this and I always come to the same conclusion. It's an optics thing. And actually we learned in 2022 50/50 almost did as poorly as all stock.

Note I did not propose increasing FI as we age. I want a strong cushion to keep me emotionally free of worries but very much recognize the need to live my life to the fullest i.e. spend as desired. Coming up is a one month trip in Northern Europe.

Financial calculators may indeed take into account all the past market declines. I use VPW a bit. But who is to say there will not be an even worse then those bear markets of the past? I do not think we will see a repeat of the 2022 bond bear market (which I did OK in) for many years but presently I have a lot of TIPS and iBonds so that is covered for the next several years. I'm pretty aggressive in our equity portfolio which uses market timing in a non-standard way.

 

[FREE866]

Note I did not propose increasing FI as we age. I want a strong cushion to keep me emotionally free of worries but very much recognize the need to live my life to the fullest i.e. spend as desired. Coming up is a one month trip in Northern Europe.

Financial calculators may indeed take into account all the past market declines. I use VPW a bit. But who is to say there will not be an even worse then those bear markets of the past? I do not think we will see a repeat of the 2022 bond bear market (which I did OK in) for many years but presently I have a lot of TIPS and iBonds so that is covered for the next several years. I'm pretty aggressive in our equity portfolio which uses market timing in a non-standard way.

Fair points....funny, we all have different personalities and I think it's important to align them with our asset allocation because heavy stock allocation can definitely be a very bumpy road. I've just really become immune to the volatility.



I'm just not a big spender but I don't curtail my spending at all when my portfolio goes down as I have , I think, a decent buffer. I do like watching my account grow though ha.

 

[Lsbcal]

Just coming back to this chart of market miseries with an update. About 654 days since the January 3, 2022 market high. It has been one year since the miserable market lows of October 2022.

Bumpy recovery so far.

Fingers crossed going forward.

 

[MichaelB]

Just coming back to this chart of market miseries with an update. About 654 days since the January 3, 2022 market high. It has been one year since the miserable market lows of October 2022.

Bumpy recovery so far.

Fingers crossed going forward.

Over this same time the economy has been quite strong. This shows that over short periods there is not a strong correlation between the economy (GDP growth) and asset markets behavior.

 

[pacergal]

Lsbcal--thanks for posting. I enjoy looking at the chart, it does show a bumpy, but fairly close recovery from our low, but sure doesn't feel like it sometimes!

 

[Montecfo]

Yes the economy and the markets are not the same.

Thanks for posting this. I enjoy seeing it.

 

[target2019]

Economy and markets are not mutually exclusive.

Thanks for posting.

 

[audreyh1]

Over this same time the economy has been quite strong. This shows that over short periods there is not a strong correlation between the economy (GDP growth) and asset markets behavior.

Yeah, interest rates play a huge role in asset valuation.

 

[FREE866]

Yeah, interest rates play a huge role in asset valuation.

I think they play A role in asset valuation. There is a tendency for people to fall into the "if rates are X then stocks will do Y" mentality and I truly wish it was that simple.


Great example was the 1990s. 1990 to 2000--10year notes averaged 6.5%.
S and P returned over 405% in that time or just under 16% annualized.


1980s were similar.

 

[Montecfo]

I think they play A role in asset valuation. There is a tendency for people to fall into the "if rates are X then stocks will do Y" mentality and I truly wish it was that simple.


Great example was the 1990s. 1990 to 2000--10year notes averaged 6.5%.
S and P returned over 405% in that time or just under 16% annualized.


1980s were similar.

No. It is the direction, amount and rate of inflection that matters most.

We see that right now with rates heading up, stocks down.

 

[FREE866]

No. It is the direction, amount and rate of inflection that matters most.

We see that right now with rates heading up, stocks down.

The stock market is up in the last 12 months during numerous rate hikes.


It’s a myriad of things that move stocks up and down.

 

[CDRE]

Thanks for the update. Much appreciated.

 

[Koolau]

I think they play A role in asset valuation. There is a tendency for people to fall into the "if rates are X then stocks will do Y" mentality and I truly wish it was that simple.

Great example was the 1990s. 1990 to 2000--10year notes averaged 6.5%.
S and P returned over 405% in that time or just under 16% annualized.

1980s were similar.

I think the real issue is that it's not "if rates are X then stocks will do Y." It is really "If rates are X then PEOPLE will do Y." Heh, heh, that just won't help much, though past "behaviors" of PEOPLE may be useful.

Mostly, be IN the market as cheap as you can be. Be diversified and pray (or hope) for long term growth. Works for me and I'm conservative with only 30% to 40% equities. YMMV

Returning you now...

 

[jimbee]

Thank you Lsbcal for updating your market graphs. Your post have a lot of useful data.

 

[GLM]

Interesting chart. Thanks for posting.

 

[freedom2022]

Thank you very much Lsbcal for keep updating the chart.
Past performance does not guarantee future return.
However, we learn from the past to plan for the future.

 

[Montecfo]

The stock market is up in the last 12 months during numerous rate hikes.


It’s a myriad of things that move stocks up and down.

Sure there are. No one said any different.

But interest rate changes do move the market. Which is why stocks are down since the Fed's rate direction became clear at the start of 2022.

And down further since this latest move higher for interest rates began.

 

[FREE866]

Sure there are. No one said any different.

But interest rate changes do move the market. Which is why stocks are down since the Fed's rate direction became clear at the start of 2022.

And down further since this latest move higher for interest rates began.

S and P is down ~5% since January 2022. Given the FED has moved up rates over 400 basis points in that time frame wouldn't you think the market would be down much more if rates were such a driving force?

 

[Montecfo]

S and P is down ~5% since January 2022. Given the FED has moved up rates over 400 basis points in that time frame wouldn't you think the market would be down much more if rates were such a driving force?

This is not something I made up. It is widely understood.

With the Fed's new rate posture, 2022 was the worst year for stocks since 2008.

All the indexes were down 20%+ peak to trough during the 2022. The Nasdaq was down 30%+.

That seemed to be a rather powerful move to my eye.

Stocks have rallied since the market began to project a top in rates in the 4th quarter of 2022.

 

[FREE866]

This is not something I made up. It is widely understood.

With the Fed's new rate posture, 2022 was the worst year for stocks since 2008.

All the indexes were down 20%+ peak to trough during the 2022. The Nasdaq was down 30%+.

That seemed to be a rather powerful move to my eye.

Stocks have rallied since the market began to project a top in rates in the 4th quarter of 2022.

There are many things that appear "widely understood" in investing, yet when you look closer these assumptions are often incorrect. A year ago numerous people on this board and in the media were convinced we were heading into a recession because of the "inverted yield curve". Remember that was the hot topic for months?


Rates moving higher, if you look at actual data, do not always translate into lower stock prices.

Higher rates in the 80s , 90s and in the post dot com years of the early 2000s did not hold stocks from moving higher. How do you or the media explain that?



You're assuming that because the market had a bad 2022 it was "all because of rates". Probably because the media pounds that message into viewers heads on a daily basis!

 

[Lsbcal]

As I understand it the inverted yield curve effect has a time lag that averages 12 months. Maybe too early to declare victory? Recession still possible or could we have a slow down?

 

[Montecfo]

As I understand it the inverted yield curve effect has a time lag that averages 12 months. Maybe too early to declare victory? Recession still possible or could we have a slow down?

15 months I read. And if anything Fed seems bent on making it happen.

 

[Montecfo]

There are many things that appear "widely understood" in investing, yet when you look closer these assumptions are often incorrect. A year ago numerous people on this board and in the media were convinced we were heading into a recession because of the "inverted yield curve". Remember that was the hot topic for months?


Rates moving higher, if you look at actual data, do not always translate into lower stock prices.

Higher rates in the 80s , 90s and in the post dot com years of the early 2000s did not hold stocks from moving higher. How do you or the media explain that?



You're assuming that because the market had a bad 2022 it was "all because of rates". Probably because the media pounds that message into viewers heads on a daily basis!

That the historically large rate hike was followed by the worst equity performance in 15 years may in fact have been mere coincidence.

If so, it is a heck of a coincidence.

I made no assumptions however. It is clear as you said there are myriad drivers of market returns. We agree on that.

But interest rate changes weigh heavily.

 

[freedom2022]

Fed rate stayed low too long from 2008 to early 2022.
Hedge funds borrowed cheap money to invest in stocks, pumping up the stock price.
Leverage is now very high in the hedge fund sector.
Consumers borrowed money to spend. They are in debt trouble.
The Fed antidote is +/- 5% rate for a year or two.
Looks like it is too good to be true.
I don't know how this will pan out ?

 

[pb4uski]

15 months I read. And if anything Fed seems bent on making it happen.

So you're saying that the Fed is bent on making a recession happen? That's crazy. Why would the Fed want to do that?

What the Fed is bent on is breaking inflation, and if a mild recession is required to break inflation then so be it.