Capital Ideas

The U.S. equity bull market is more than nine years old, but the recent spike in volatility has caused investors to wonder if the bull run is on its last legs. However, declines are a normal part of markets, and investors who stay the course over the long run typically have been rewarded. One silver lining may be that market declines are typically much shorter and less severe in the absence of an economic recession. On average, bear markets during an expansion recovered within six months – nearly three times quicker than when they coincided with a contraction.

U.S. recessions occur for a variety of reasons, but typically are the result of a macro or financial imbalance. At this time the imbalances don’t seem extreme enough to derail the economy, but suggest weakness sometime in 2020 as they continue to build.  If monetary policy continues to be accommodative, the ramifications of those imbalances could be pushed even further down the road. Volatility may remain elevated in 2019, but investors are often best served by remaining calm and maintaining a long-term perspective.