SPECIAL EDITION: Telling the story of how the stock market usually goes up, year 2 📈🎂
TKer’s second year was all about Stock Market Truth No. 7 📜
Two years ago on October 14, I launched TKer as the newsletter that tells the story about how the stock market usually goes up.
Year two reminded us it’s not all bad all the time in the stock market. Many of those who’ve been dollar-cost averaging are recognizing how buying into a downturn can boost longer-term returns.
TKer Stock Market Truth No. 7 📉
Even during history’s more favorable market backdrops, most market participants will have no trouble identifying a major risk that could morph into a systemic problem that brings down the markets and the economy.
Every month, Bank of America surveys its fund manager clients and asks them to identify the “biggest tail risk.” As you can see from the historical results charted below, there’s always something very scary casting a shadow over the markets.
And then, even as economic recession risks faded and the earnings recession proved less severe than expected, new worries quickly emerged including the threat of the U.S. government defaulting on its debt and unexpected turmoil in the banking sector.
More recently, we’ve seen interest rates surge and energy prices rise. There’s also the lingering threat of a U.S. government shutdown, and we have yet to understand how the restart of student loan payments will impact spending.
Despite all of these issues, the S&P 500 closed Friday at 4,327.78, up 21% from a year ago.
The stock market’s impressive long-term track record 📈
While the emergence of risks can lead to short-term volatility, the stock market has historically proven to be a place where investors can build wealth over the long term.
In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
Since Buffett wrote that piece, we emerged from the financial crisis, the U.S. experienced and moved past two credit rating downgrades, and the markets bounced back from a global pandemic that had crippled the world economy. And the Dow has nearly tripled.
Michael Batnick of Ritholtz Wealth Management recently shared this chart of how wealth accumulated in the stock market over the past century. It’s annotated with a sampling of historical challenges the market eventually overcame.
Ryan Detrick of The Carson Group recently shared this table of how the S&P 500 performed around geopolitical events.
Market sell-offs, when they occurred, have been short-lived. And the drawdowns (i.e., the percentage loss from peak to trough) have been limited.
There are certainly instances where events were followed by prolonged weakness. Still, it wasn’t too long before the market recovered those losses.
Keep in mind that since 1950, the stock market has been in a bull market 83% of the time.
By the way, stocks don’t rise just for the sake of rising. Over time, they’re driven by earnings. And no matter what’s going on in the world, publicly traded companies will never stop pursuing earnings growth.
The bottom line: There’s no avoiding bad news, and uncertainty will always seem elevated. But despite the most consequential headwinds and destabilizing events imaginable, the stock market has a consistent track record of pulling through and rewarding investors who were able to give it time.
Related from TKer:
The state of TKer 📈
TKer’s second year exceeded my expectations.
TKer won the 2022 SABEW Best In Business Award in the newsletter category, small division (fewer than 50 editorial staff)!
There are currently more than 22,000 subscribers receiving TKer newsletters in their inboxes. And paid subscriptions continue to set new records every month. Thank you for subscribing!
Since launch, TKer has sent out 309 newsletters. For those keeping count, that’s about two paid newsletter for every free newsletter that gets sent.
Growth and engagement has been pretty consistent during both market downturns and upswings. I like to think that it confirms TKer is doing something right.
Please continue sending me any questions and feedback. I’m always looking for ways to improve TKer.
Best of TKer 📈
Here’s a roundup of some of TKer’s most talked-about paid and free newsletters from the past year. All of the headlines are hyperlinked to the archived pieces.
A video of a heated exchange between what appears to be a manager and a customer at a Dollar Tree store went viral on TikTok. Give it a watch. It’s 33 seconds long. I see at least six major economic themes reflected in the incident. Let’s unpack them.
Why are the permabears (i.e., financial market pundits who spend most of their time being bearish) embraced by so many even though they spend most of their time being wrong? I’ve been thinking about this question more and more in recent weeks. And in my reflection, I’ve noticed a pattern in how retail investors rationalize their financial performance after embracing an incorrect bearish view. It goes something like this: “Well, at least I didn’t lose money.“
I had the privilege of speaking to a class taught by Greg Harmon, one of the savviest minds in trading. Harmon teaches financial markets at Case Western Reserve University’s business school. In my talk, I shared some chart that serve as a reminder for investors to be cautious with news headlines that may belie a greater, more nuanced truth.
Earlier this year, I started to notice that regardless of whether a market or economic metric went up or down, there were bears coming out to explain why the development was bad regardless of the direction. My friend Michael Antonelli, veteran market strategist at Baird Private Wealth Management, gave me a nudge and let me know this has always been the case for the bears.
It’s not just the past two years that have been good in the economy. And similarly, it’s not just the past year that has been good for stocks. Ritholtz Wealth Management’s Ben Carlson recently observed that since 1929, the economy has been in growth mode 84% of the time. eToro’s Callie Cox noted that since 1950, the stock market has been in a bull market 83% of the time.
Does a low saving rate mean households are going broke as they use more of their incomes for spending instead of saving? The short answer is no. As we’ve discussed repeatedly at TKer, household finances are quite strong. People have money. In fact, a declining saving rate may be a reflection of household finances getting even stronger.
There’s been a confusing mix of good news and bad news about the U.S. labor market in recent weeks. On one hand, we’re seeing numerous anecdotes about layoffs at high-profile tech companies, which have been covered aggressively by mainstream media outlets. On the other hand, the hard aggregate data continues to say net job creation is high, unemployment is low, job openings remain abundant, and layoff activity at the national level — believe it or not — remains historically low.
Has Corporate America been paying its fair share of the inflation that everyone’s experiencing? “Fair” is a loaded term, and I’m not going to claim to have a good definition for it in this context. But as more people become familiar with the way inflation has been passing through companies, there’s likely to be more people arguing that companies have not been picking up enough of the slack.