The news is bad, should we get out of the market?
The news is bad: we’re facing an economic slowdown.
The news is bad: we’re about to have a hostile election.
The news is bad: we are expecting higher unemployment.
The news is bad: people are rioting in the streets.
The news is bad: we are expecting this virus to linger longer than expected.
The news is bad: we can expect higher inflation in the future.
Probably not a good time to be in the stock market. Right?
This was the news from 1968.
That’s right, fifty-two years ago. And we were involved in a war!
We had just come off the riots in Newark the previous July (1967). Again in 1968, there was unrest everywhere you turned. There were riots in Orangeburg (SC), Washington DC, the west side of Chicago, Baltimore, Avondale (Cincinnati), Kansas City, Wilmington, Louisville. Martin Luther King and Bobby Kennedy were assassinated in 1968.
The Democratic convention in Chicago turned the city upside-down, and everyone learned the Mayor’s name (Richard Daley).
GDP in 1968 was approaching $1 trillion for the first time. The economy grew 4.9% in 1968 but was widely expected to slow down at some point, in 1969 (it did). GDP in 1969 grew at a slower rate, 3.1%. But most of the growth happened the first half of 1969.
The recession did finally arrive. The economy barely grew at all in 1970, just a scant 0.2%, as the economy entered a recession and exited in the same year.
The “Hong Kong” flu pandemic was caused by a virus. The pandemic killed over 100,000 people in the US and approximately one million people died worldwide. Did you wear a mask back then?
But what about inflation and unemployment?
Economists expected inflation to continue to climb. The rate of inflation hovered between 1% and 2% from 1959 through 1965. But by the end of 1968, inflation was approaching 5%. Read more here: https://core.ac.uk/download/pdf/6706019.pdf
While the unemployment rate held steady 1966-1968 at 3.8%, unemployment was expected to rise. In fact, sixteen months later, unemployment doubled to more than 6% for all of 1970-71. Incidentally, minimum wage in 1968 was $1.60 per hour.
The stock market was OK in 1968, despite all this news. The S&P 500 began the year around 730 and finished near 750. In 1969, the S&P 500 index slumped, a recession began in November 1969. Markets recovered by mid-1970. But by October 1973 we entered another recession.
The news will always be bad.
Think about that. The “Good Samaritan” reports of kindness and helping your fellow man get mentioned in the last thirty seconds of a one-hour news show. And remember, it is a news show. Meaning, if it bleeds, it leads.
Whatever amount of cash you will need in the coming 12-24 months, do not invest in stocks. Whatever amount that may be (not the whole nest egg). Keep those funds in something liquid and safe. If you do not need the funds in the short-term, invest. Especially if investing retirement assets. Except for short-term needs, most money should be invested with at least a twenty-year time horizon. Like this guy.
Sources:
Inflation, GDP and Unemployment:
https://www.journals.uchicago.edu/doi/pdf/10.1086/ma.2.4623703
https://www.journals.uchicago.edu/doi/pdfplus/10.1086/ma.2.4623703
https://www.thebalance.com/unemployment-rate-by-year-3305506
Markets:
https://stockinvesting.today/ma1607/article/the-1967-1968-bull-market?
https://markets.businessinsider.com/news/stocks/1968-parallel-market-stocks-go-higher-deadly-pandemic-mass-protests-2020-6-1029273829
Chart:
https://www.bls.gov/opub/mlr/2014/article/one-hundred-years-of-price-change-the-consumer-price-index-and-the-american-inflation-experience.htm