Taking a long-term view when the long-term has been awesome

Investors understand they should take a long-term view of things, and put unsettling market, economic and geopolitical events – and any associated volatility – in proper perspective. Of course, that is both  easier said than done, and most needed when it is also most difficult to do – when the world has indeed become a more frightening place and markets have become more turbulent. Today seems like such a period, with all of the concerns and questions associated with the coronavirus, impeachment, and the 2020 election weighing on investor sentiment and risk assets. As we have written, we don’t see the  coronavirus as being a meaningful, long-term risk to the markets or economy, and we aren’t concerned about impeachment and the election. However, politics and policy are very different things, with markets caring about policy and dismissing politics, and today policy remains supportive of risk assets and economic growth.

But what is particularly interesting about our recent client conversations is not only the risks that many  clients are raising – including the coronavirus, politics, and valuation - but the context in which they are raising them – that since we haven’t had a recession or bear market in more than 10 years we are due for at least one of the two, and more likely both. Said differently, many investors are having a difficult time taking a long-term view of things due to the fact that the long term has been awesome. While we are living through the longest economic expansion (start date June 2009) and the longest bull market (start date March 2009) in our nation’s history, it is important to put both in perspective. Our long-lived recovery has been modest by historical standards, with cumulative real GDP growth of about 20%, while the S&P 500 Index, on a rolling 20-year basis, has provided investors with an annualized return of 6.06%, pretty much its lowest 20-year rolling return ever (the 2010s were great for the market; the 2000s were awful). As always, the economy doesn’t know if it has been expanding for a day or a decade and the market doesn’t know if it has been rallying for a minute or a month. When it comes to allocating capital, ignore the calendar and keep your focus on monetary policy, fiscal policy, and fundamentals. For now, all are supportive of an optimistic view of risk assets.

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