CIO Strategy BulletinArticle18 May 2024

The Market Outlook in Three Phases: Bull/Bear/Bull Revisited

CIO Strategy Bulletin

Investors cannot succeed by investing only when markets and the economy are depressed.

Key Takeaways

  • In our last CIO Bulletin, we answered questions posed to us from investors tied to particular risks. All were about feared negatives. Our own question is “why so glum?” Global economic growth seems to be stabilizing and broadening. Corporate profits are rising. US employment growth – which drove interest rates pressure – is slowing.
  • To be clear, in our “three phases” thesis in Wealth Outlook 2024, we are heading toward a “normalization period” rather than a “V-shaped” collapse and recovery pattern in financial markets. Unlike 2023, markets are not broadly depressed, investors are not “bearish on everything” and certain US policy risks (such as excessive trade protectionism) remain. Yet investing only during depressed periods is a strategy of underperformance.
  • If one had implausibly perfect knowledge of when US equities bottomed in recessionary troughs and invested only for the year of recovery (earning T-Bill interest at other times) the return in the past 50 years would have trailed a buy-and-hold S&P 500 return by 3.1% per annum. This is the case even when including eight recessions and four severe bear markets.

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