If the recession is truly ending, you’ve already missed the stock market bottom
In case you missed the news, most economists think the recession will end somewhere around the middle of this year. That doesn’t mean everything will go back immediately to how it was before the crash. They think growth will be slow, and unemployment won’t peak (at 10%) until next year.
I hope you haven’t kept your money out of the stock market until now, waiting for such a report. Because if they’re right, we’ve probably already experienced the market bottom and a huge percentage of the new bull market’s gains have already happened.
According to Ned Davis Research, market bottoms happen about 4 months before recessions end on average. Of course, history doesn’t have to repeat itself, but if economists are right and the recession will end in the year’s second half, that S&P 500 low in March (about 35% ago) was as low as the market is going to get.
Hopefully you haven’t been trying to time the market anyway and have kept your asset allocation pretty consistent throughout this whole mess. But if you need even more reasons to not wait around for someone to wave a green flag announcing the recession’s end, take a look at this list of press releases from the National Bureau of Economic Research. Scroll about halfway down the page.
Do you see what I’m seeing? It took the NBER between six months and two years to announce the official end dates of previous recessions and expansions. In fact, in November 2001, when the NBER announced that the recession had begun that previous March, the recession had actually already ended, though NBER wouldn’t make that determination until July 2003!
This is a short post, but it almost feels like too many words to explain one, easy lesson: Market timing is hard, if not impossible. The stock market tends to lead every leading indicator out there. So unless you want to make a fulltime job out of stock watching (and even professionals screw up all the time), you’re best off sticking to an allocation based on your own needs and goals rather than based on the news of the moment.
— Joe Light
