On Friday March 20, 2020, the S&P 500 declined 5.2% and the stock market was seemingly in freefall, having declined nearly 35% from its February peak. News was bad and getting worse. Many states and cities had shelter-in-place orders and there was little doubt that the economy was in a severe recession.
But, one year ago today, Monday March 23, 2020, was the day the S&P 500 bottomed and it did so in the midst of all the bad news. This teaches us an important point about investing: you can’t look to what is happening in the economy to predict stock market returns. I wrote an article on this point about a month ago: What 2020 Taught Us About The Stock Market.
Here’s a chart showing the remarkable stock market rebound in the midst of bad news:
One year ago today there was no reason to expect a rip-roaring stock market. Yet, the return over the past 365 days is one of the best in history. Check out this chart from S&P:
Nearly a year ago, on March 26, 2020, I published an article titled Why The Looming Recession Doesn’t Mean You Should Sell Out Of The Stock Market. In that article I point out that the stock market and economy aren’t correlated and just because the news is bad doesn’t mean that you should sell out of the market. Since then I’ve been asked how I knew that that stock market had bottomed. The question misses the point: I didn’t know what the market would do. It went up. It could have gone down. I didn’t know. And I still don’t.
As investors we must make peace with the fact that the future is uncertain and there are no reliable signals that tell us what the stock market will do. The stock market can stink during a roaring economy and can take off like a rocket while the news is dire, just like it did in 2020. Life in general, and investing in particular, is full of uncertainty. Rather than fight that fact, it is more productive to accept and embrace the inherent uncertainty. I believe there is grandeur in this view of life.
I believe there is grandeur in life period. All life is grand, but human life is the most grand of all. I think, we have a big responsibility to do all we can to use other life forms responsibly.