Market is unpredictable, recession or not

Written by Gary Silverman, CFP®

Yes, I think there is a good possibility that we are entering a recession—probably a world-wide one. But that doesn’t mean you should get out of the market “while the getting is good,” as they say. There are a few reasons for this.

Let me start out by reminding you that the stock market can go down…and it doesn’t require a recession. If you’re old enough, you’ll remember October of 1987 where the stock market dropped precipitously. It was made famous not just for how quickly the market slid, but it was the first big drop in the era when so many Americans owned stock mutual funds. And they wanted out of them IMMEDIATELY! They were afraid that if the market could drop 20% in just a few hours, then they’d be broke by the end of the week.

So, although there was a recession back in 1981-82 and one in 1990-91, there was nothing anywhere near that 1987 crash. The moral:  if you are worried about bad things happening, you shouldn’t just worry about a recession.

Add the example of Y2K. Again, if you’re old enough you dreaded the minute that 1999 turned into 2000. We were worried about many computers in the world ceasing to function. Images of blackouts, runaway nuclear power plants, planes falling from the sky, and pipelines exploding came to mind.

It didn’t happen. But just a few months later we had the tech bubble burst that began a three-year market drop. The recession didn’t happen until 2001. If you knew just when the recession was going to hit, you would have gotten out about a year late. It would have helped, but your timing only saved you about half the market’s decline.

So, one reason I don’t get out for a recession is because there are a lot of times when we’re not in a recession and are still losing a lot of money. You may think it’s still worth it to drop out if you could save your money. Sure. Just tell me exactly when the next recession is going to hit.

I’ll help: Recessions occur, on average, seven years from the previous one. And if it is true we’re a bit overdue for one. Here’s the amount of time from the end of one recession to the start of the next since 1957: 39 months, 24 months, 106 months, 36 months, 58 months, 12 months, 92 months, 120 months, and 73 months. You see the pattern? Me either. That’s the problem.

Then again, I started this whole discussion by saying I think there is a good possibility that we are entering a recession. But don’t believe me. I don’t. My predictive powers aren’t the greatest. The recession I predicted to start in 1995 didn’t actually show up until 2001. That said, I do anticipate we are within a year of a recession, and I’m not alone. Leading economists are saying the same thing. Now, these folks are pretty good about calling a recession—they just tend to call a lot of them that never materialize.

Next week, I’ll continue discussing why I stay in the market even when a recession is looming. Meanwhile, don’t panic. 

This article was published in the Wichita Falls Times Record News on February 7, 2016.