Tom Vaughan:
Hello, everybody, welcome to Tuesday, the S&P 500 was down 1.2%. Today, I really think the markets waiting around for the Federal Reserve’s comments tomorrow, the meeting today, they meet tomorrow. And they come out and give their comments talk about what they see and what they might be doing very, very important events to the stock market, you will see this. So I think people kind of wait on the sidelines until we see what happens there. I would like to spend some time here talking just about the history of kind of downturns. The S&P 500 Right now, from its highest close to the close today is down 9.2%. And so, you know, how often does this happen and those types of things, one of the things that helps me tremendously during these downturns is kind of understanding the history and how they work in the past. So CNBC put out a great article today shows that since the end of World War 219 46, to now we’ve actually had 84, downturns of five to 10%, so happens more than once a year, we really haven’t had hardly any at all, in the last over three years. You know, we had a downturn in 2018, of course, we had the pandemic downturn. So I think we’ve forgotten how frequent these are at the recovery time on those five to 10% downturns is just one month on average, so not too bad. And then when you get to that kind of 10, to 20% downtrend range, which we could fall into, I do think we have some momentum to the downside here. Those have happened 29 times, still fairly frequently, since 1946. But the recovery times only four months, not too bad, on average. And that’s where the dividing line goes. Because when you get to that 20 to 40%, there’s only been nine of them, the recovery time is 14 months, and quite a bit longer. And then you get to 40%, you know, downturn or higher, there’s only been three of those, that’s a 58 month recovery time.
But the difference between kind of that zero to 20. And the 20 or more is that generally speaking, when the market has fallen more than 20% has been accompanied by an economic downturn. That is not what we’re having right now. The leading economic indicators went up again in December, earnings are pretty fantastic. 88% of the companies that have reported so far have beaten Wall Street’s expectations for those earnings, which is really fantastic markets still going down, even though earnings are going up, and the economy is going up. Usually, that kind of a buying signal to me as far as that goes, there’s just some negative sentiment that’s happening here, fear about what the fairies are, might do or might not do. You know, a lot of times, there’s different things that are going on, you know, in different people’s portfolios, and what have you. So you want to design portfolios that can handle that kind of zero to negative 20%, drops in stock market, so that you don’t have to do a lot of movement and those types of things, and how much in stock and bond and those diversification that you have in that portfolio. And then when we get into emotion like this, where the markets coming down economies coming up, I call that a sideways motion market until the economy starts to come down, or we get past 20%.
And essentially, what you want to do is you want to just keep rebalancing the portfolio to that timeframe, if the market gets past 20%. And especially if there’s some signs of economic weakness coming on at the same time, that’s when you probably want to get more defensive, just because again, the recovery times are one in 4%, for that kind of 510, plan to 20%, you know, downturns, and they get a lot longer after that. So you can kind of shorten your recovery times potentially, by getting a bit more defensive to get past that. So I thought those numbers were useful. There, you know, it helped me a lot to understand what’s going on, you know, with the markets is understanding the history of the market. So I always trying to help people to get better at their investing and how they feel about their investing. And I do think that’s a big important component is understand, you know, what’s happened in the past. As far as that goes, these types of downturns we’re having right now happened more than once a year since 1946. So, just kind of part of the process. markets still a great place to be, just have to be able to kind of ride through some of these. So look forward to seeing what’s going to happen tomorrow with the Federal Reserve’s, you know, meeting comments and what have you and I’ll talk to you and give you my analysis about those tomorrow. Thank you very much.