March 2022 Newsletter to ClientsSubmitted by Moneywatch Advisors on March 10th, 2022
Enjoy this month’s edition that features a review of stock market history geopolitical events plus an income tax reminder.
For those of us who enjoy history, the Russian invasion of Ukraine is horrific, yes, but also fascinating. Russian President Vladimir Putin, a former KGB agent of the former Soviet Republic, trying to reverse history and rebuild the Russian empire by forcibly occupying a democratic country harkens back to the years right after World War II. When the Soviet leader Stalin implemented a blockade of West Berlin in 1948 in an attempt to keep Germany weak and to, hopefully, prove that a divided government would not work, it was viewed by the West as an effort to expand Communism throughout Europe and possibly even beyond. The U.S. did not directly confront Stalin and his blockade but devised a way to deliver food and goods to the people of West Berlin through an elaborate air lift. Remind you of how the West is dealing with the crisis in Ukraine today?
So, how have markets reacted to various geopolitical crises and historic events? From President Harry Truman’s March 17, 1948 speech to Congress criticizing what he called the Soviet Union’s expansion of communism until the end of December, 1991 – when the Soviet Union ceased to exist – the Dow Jones returned 10.05% on an annualized basis. From then through now, the Dow returned 10.77% on an annualized basis. So, during the Cold War and after, not much difference from the market’s perspective.
Over the long-term the U.S. stock market churns right along doing its thing. But, what about when major geopolitical crises occur? In a nutshell, if there is not a recession accompanying the event, the stock market performance is strong. If the event helps spur a recession, not so much. In fact, in the last 50 years the only bear stock market – a decline of 20% or more from the previous high – to not occur during a recession was in 1987. The stock market crashed in October that year and recovered its high mark in about two years.
Looking at 37 geopolitical events and crises the following occurred:
- If no recession followed the event, a year later stocks were up double digits;
- If a recession occurred, stocks were down double digits the following year.
Let’s add some further short-term perspective. It’s easy to forget, but the stock market often makes huge swings during the year – up and down:
- An average year sees a 14% decline in the stock market sometime during the year. Most of the time, the market recovers from that swoon. Obviously, not always;
- During years in which there are mid-term elections scheduled, like 2022, the average decline sometime during the year is 17%;
- During 2021, the biggest decline during the year was a paltry 5%.
As you know, timing the stock market – predicting what it will do over the short term – is a fool’s errand. That, of course, does not deter some people from trying. Moneywatch, however, focuses on investing each of our clients in a way that we believe is in the best interests of their specific situation. It isn’t fun when our investments jump around like a bucking bronco, but history shows focusing on the horizon will help prevent that investment motion sickness.
Income taxes filing deadline is April 18 this year. By now, you should have received all pertinent tax reports from TD Ameritrade. They can also be found in your Moneywatch Advisors portal in the Vault tab under Custodian. If you have questions, please contact us soon.
Thank you for your continuing confidence.