Quarterly Investment Update

In the face of trade tensions and slowing economic growth, the first half of 2019 turned out to be an exceptional period for investments.

Stocks posted substantial gains, with the S&P 500 Index surging 18.5% year-to-date. This marked the best performance at mid-year in the past 22 years! Real estate was up 20%+, while international stocks added double-digit gains as well. Even high quality bonds – the stodgy, stabilizing component for portfolios – produced mid-single digit returns.

Looking forward, concerns have been increasing over the prospect of a recession, due in part to the old age of the current business cycle. The U.S. recently passed the ten-year mark for economic expansion, making it the longest in history. Growth has been slowing, but the labor market and consumer spending both appear healthy. A lack of inflation gives the Federal Reserve the opportunity to cut interest rates to provide a boost, which could potentially help keep the economy plodding along.

Economists generally acknowledge that recessions are primarily the result of economic shocks, and by nature, “shocks” are difficult to anticipate. Unfortunately, recessions have a tendency to rear their head without much warning. So what would a recession mean for the markets?

Over the past 90 years the median recession has lasted only 10 months, so they are generally short-lived. Stock performance during recessions has varied considerably, from double-digit gains to double-digit losses (which could also be said of any 9 or 12-month period). Since WWII, the average return for the stock market during a recession was a modest 6% decline, with five periods showing gains and five with losses. To complicate things further, it often takes six months or more for economic scorekeepers to recognize a recession – it was a full year for the “Great Recession” to be officially declared. Every business cycle is unique, as is the stock market surrounding it.

Post-recession, stock returns have generally been quite strong. Gains have averaged more than 15% in the year following a recession. Given the hazy nature of recession timing, along with the uncertain impact on stock returns, the best policy is to stay the course with a long-term investment plan. It’s not always fun or easy, but it’s the most sensible approach.

As always, reach out with any questions or concerns you may have.

Warm regards,

The LPP Team
Life Planning Partners, Inc.