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Market Wrap-up for Mar. 19 - Why You Should Ignore Recession Fears

Stoyan Bojinov Mar 19, 2015


The Fed dropped the word “patient” from its policy statement, which was unveiled yesterday, and investors responded with a flood of buy orders. Major equity indexes enjoyed a stellar rally on Wednesday as investors rejoiced over the fact that policymakers expressed their willingness to remain accommodative in light of subdued GDP growth and inflation prospects.


As you might expect, everyone is spinning the Fed’s latest commentary in their own way. While most investors undeniably remain optimistic, as evidenced by the steep equity market rally, there are those who are taking the pessimistic side of the argument as well; that is, the fact that the Fed lowered its GDP growth and inflation forecasts means the economy isn’t doing as well as previously thought.


Recessions Fears? No Reason to Worry


It won’t be long now before the perma-bears make another appearance and tout the growing probability that we’re going to enter into a recession in light of: sluggish growth, a stagnant labor market, and continued uncertainty that policymakers may hike rates prematurely. Our advice on dealing with recession fears if (and when) they resurface is simple — don’t worry about it one bit.

Seasoned market veteran Ben Carlson, and respected author of A Wealth of Common Sense, recently posted some interesting findings with regards to recession fears. Ben ran the numbers and documented how the S&P 500 has historically performed before, during, and after recessions dating all the way back to the 1950s.

His findings are summarized in the table below:

S&P 500 returns around recessions

The returns data speaks for itself. Right off the bat, it’s evident that the market tends to generate overwhelmingly positive returns in the 1, 3, and especially the 5 year periods following a recession. More importantly, notice how resilient the S&P 500 actually is during the recessionary periods themselves; the S&P 500 posted negative returns during only five out the last nine recessions, and the average return comes out to a mere 1.5% decline.

We’ve reminded investors over and over that there’s no reason to get rattled by corrections on Wall Street — and it looks like you should add recessions to your “do not worry about” list.


The Bottom Line


As proponents of long-term investing, it’s no surprsie we’re also advocates of ignoring stories in the market that are inherently meant to inspire fear. While a recession can most certainly deal a severe blow to your portfolio, if you’re invested in high-quality dividend payers, you should be fine over the long-haul. After all, markets are cyclical in nature so it’s important to remain patient during highs as well as the lows.

Be sure to follow us on Twitter @Dividenddotcom.

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