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Lindsey Report – February


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Well, hmm, the equity markets started 2016 in a tumultuous and ugly fashion with basically every major index logging smelly returns in January. The Dow, S&P 500 and Nasdaq were down more than 5%, and well off their May 2015 highs.  Moreover, prior to a late-month rally, they had all been down in excess of 15% from their highs and in correction territory (AP).

I am using this letter as an opportunity to review some history of up and down stock cycles and the terms you may hear in the news. While we have bounced off recent lows, this move represents the second “correction” in the past six months (a correction is a negative move of more than 10%).  A “bear” market refers to a negative move of more than 20%, whereas a “bull” market is a positive move of more than 20%.  We have been in a bull market since ’09 (AP).

Anyone who has been an investor since 2008 has experienced both a bear and a bull market; however, investors with 20, 30, 40+ years of experience have seen many cycles. Fortunately, for every bear market, they have also seen a bull market recovery, leading to higher highs.

Since 1950, there have been 13 previous cycles that included a drop of more than 15%. Nine became bear markets, including the recent Great Recession or GR.  Understandably, the GR left an indelible impression, as it was the worst down market since the Great Depression – it was historically bad.  However, we have also experienced a full recovery and have seen many new highs since then (Financial Planning).

During a down market, the most common concern I hear from retirees is, “we don’t have enough time for the markets to recover”. Recovery is a legitimate concern; therefore, how long does it usually take to return to the peak?  In the 13 down markets since 1950, it has, on average, taken less than 1.5 years to fully recover (only four took longer) (Financial Planning).

Lastly, it’s not that I’m prognosticating; rather, I want you to remember, every previous down market has seen a full recovery with higher highs and it has not taken that long for it to happen.

 

The opinions voiced are for informational purposes only and are not intended to provide specific advice to any individual. To determine which investments are appropriate for you, consult myself prior to investing. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.  The economic forecasts set forth in this commentary may not develop as predicted and there can be no guarantees that strategies promoted will be successful.

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