In lieu of resolutions and all things ‘bettering yourself’ (bleh), I have seen many go-getters sprinting down the seawall like their life depends on it. Good for them, I guess. My boyfriend tells me that running is a good way to ‘clear your head’ and is ‘easy once you get going’. I’d like to formally declare a list of very legitimate reasons why I can’t go for a run — this is to be used for future reference when anyone asks:
I can’t go on a run because my phone says that there is a 40% chance of rain in 11 hours. Also, it’s windy. I don’t want to be blown away.
I just ate avocado toast and a bag of crispy minis. Running with a full stomach can lead to indigestion, so I’ll need to wait several weeks.
According to research from one remote Scandinavian scientist, running when it’s cold out causes blood pressure to rise. In using my critical thinking skills, it seems silly to risk angina just to go on a little run.
I already showered this morning. If I go for a run, I will have to take a second shower which will use too much water and increase my environmental footprint. I care too much about global warming to do such a thing.
I heard there was a political demonstration happening sometime this week. The people may need my running path, so I will surrender it to them.
There are people who subscribe to this newsletter who really need me to tell them how long this bear market is going to last. I am a woman of the people. I must write this and any other financial literacy article the people need, before I go on a run.
*These reasons are applicable all year long.
Unless you’ve been under a rock for the past 365 days (couldn’t blame you), you know that 2022 was not good for the major stock indices. And by not good, I mean absolutely atrocious.
Why, you ask? Blame rate hikes. That fun little thing where the Bank of Canada and federal government decide to raise interest rates to stave off inflation. The markets have made many valiant attempts to recover — notably this summer when the S&P climbed 17% and the Nasdaq 100 was up 23% — only to come crashing down to their lowest levels of the year. Think of it sort of like Lindsay Lohan’s career (reality shows, a Hallmark Christmas movie, etc.), all heroic attempts at resurrection, but nothing seems to be catapulting her back to her early 2000s rom com era.
The end of 2022 brought several rally rumblings, each one filling investor’s hearts with hope that it would be the one that lasts. That the markets would finally recover. Unfortunately, recoveries — like the moment it got cool to wear cargo pants again — become clear only in retrospect.
I’ll start off with the basics.
What is a market bottom and what is a recovery?
A market bottom is probably exactly what you think it is — a downturn (or bear market’s) lowest point before stocks climb up and surpass their pre-fall levels. This is why frantic people on Twitter ask things like “have we seen the bottom?!” and a million other unqualified people jump in with their two cents on what the market is going to do.
If for some godforsaken reason you want to enter the Twitter sphere and join in on the action, you could comment that it is notoriously difficult to call the market bottom thanks to bear-market rallies which occur when stocks rise during a downturn before diving even lower. Like a man taking you on a dinner date, telling you to text when you’re home safe, saying he had a great night, only to ghost you the following day. It’s hard to tell when the stock market is or is not playing one big game of psych!
A market recovery is, well, when a market recovers. I don’t know how else to put that.
How long does a recovery take?
I feel like a politician writing this answer, but — it varies.
- I’ll start with the bad news: In the late 60s, the U.S. stock market took 17 years to recover in real terms.
- The medium news? Since World War II, the S&P 500 has taken a median of two years to recover.
- The good news? The S&P 500 has recovered before in as little as 4 months.
And while we’re talking about things that have happened since WWII, bear markets (when stocks fall 20% or more from their recent highs), have taken an average of about 12 months to hit bottom. If you’re confused as to what I’m saying just know, this is encouraging.
What needs to change to start a market recovery?
Again, coming in hot with my candidacy for the U.S. Senate — that depends on the downturn.
The 2022 freefall of the stock market has been described as a “cyclical downturn”. This means that the economy overheated, inflation rose, and central banks raised rates in response.
Stick with me — I know this feels painfully financial but it’s going to feel phenomenal to whip out the term “cyclical downturn” at a dinner party full of finance bros.
“Cyclical downturns” apparently tend to end whenever central banks start cutting rates, which encourages borrowing and fuels growth. Apparently, this helps explain why stocks had a few moments of optimism near the end of the year, when the Fed (BOC for Canadians) hinted at slowing down before raising rates less aggressively than it had been.
Apparently. Economics is not my strong suit, I just read this somewhere.
Why doesn’t the Fed/BOC just cut rates and get this horrible downturn over with?
I wrote an article way back when, posed as 3-part letter to my sister, as to why “we can’t just print more money.” The Bank of Canada can’t just cut rates and they can’t just print more money because of a little something called inflation.
Here’s a fun fact for you: inflation is higher than it’s been since the early 1980s, when banks were charging more than 20% on home loans. Another great dinner party uplifter. (But don’t throw a fit, there are signs of it slowing down in both the U.S. and Canada).
Central banks will do literal acrobatics to avoid inflation from getting that bad again — even if it takes a recession to avoid it.
Are there any other signs to look out for?
One thing that can lead to a recovery is when everyone who was forced to sell parts of their portfolios — they needed to raise cash to avoid defaulting on a loan or to make their higher mortgage payment, for example — is done selling.
Not to be the bearer of bad news, but we haven’t seen that yet. You also tend to see interest rates stop increasing, economies weaken, and stock market valuations hit lower levels than they currently are in the U.S. and Canada before a market recovery.
Are there parts of the market that tend to rise faster than others once a recovery begins?
I am not a financial advisor — so I am unqualified to answer such a question, but my spotty research tells me that it is hard to predict what will come back first.
Ben Reeves, CIO of Wealthsimple recommends international diversification:
“One thing you can do is make sure you are diversified internationally, since we don’t know where in the world the recovery will come from — and since stocks outside of North America now have more attractive valuations than U.S. or Canadian stocks. The other thing to do is classic: diversify your assets. Bonds and commodities can outperform stocks and help with portfolio resilience”.
So, like, what’s the average investor supposed to do?
Let’s end on a high — investing right after a downturn can yield some of your best returns. But trying to time the market is an unnecessary stress and probably won’t work. For average investors:
Take the long view and consistently invest in a low-cost diversified portfolio no matter what’s happening in the markets.
Regularly investing exposes you to a bunch of different prices, which reduces the anxiety of picking the exact right time to invest. Whatever you decide, remember that you’re guaranteed to experience bear markets many times over the course of your investing journey.
If there’s anything we can count on in this little life, it’s that history repeats itself. As history has shown, recoveries have always followed declines. I saw a really beautiful interview where Jeremy Pope was saying that he wanted to find an equilibrium in his life — to control the highs being so high and the lows being so low. But if you’re looking at a heart monitor, it’s going up and down and if you straighten out those ups and downs to find that middle place, you flatline. Life is, for better or worse, about the highs and lows.
So pour yourself a bottle of wine (that wasn’t a typo — pour a whole bottle into a glass, it’s January after all), think about how smart you are for choosing not to go on a run, and remember that what goes up must come down and vice versa and again and again.