Individual Investors


On the Road to Recession? Probably Not.


Douglas S. Foreman, CFA
Chief Investment Officer
Kayne Anderson Rudnick

The key investment issue facing investors today: Is the U.S. economy on the road to a recession? Probably not, but I want to go through why that’s important. First of all, if you look at the history of the stock market since 1926, there’s been 10 declines of 20 percent or more from their all-time highs, which is what is considered a bear market. So it’s only happened 10 times over the last almost 100 years. And 8 out of the last 10 times that this has occurred, it’s been triggered by a full-fledged economic recession as defined by the National Bureau of Economic Forecasting.

So, there were two periods where the market declined 20 percent and went into a bear market which was not triggered by a recession. One was the Cuban Missile Crisis back in 1962 when Kennedy was the president. For obvious reasons, this created a lot of consternation in the stock market because of the prospect of the thermonuclear war. It didn’t last very long, it only lasted seven months and the market went down about 28%, but it was a bear market as we are defining it.

And the second time that it happened was in the 1987 crash, which I would argue was mainly triggered by portfolio insurance trading and technical glitches at the time. And I actually lived through that decline and that really lasted only three months as defined by most market people, and I would tell you it really only lasted about three days. And you did make a lot of money if you bought the week that the market opened down on that Monday.

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