Keeping It In Perspective

Now that we have had some time to reflect back over the last year or so, I think it's important to keep things in proper perspective.

Leading up to the Global Pandemic the markets had been performing quite well (see below).

Once it became clear that the world was facing a global pandemic, the United States and most of the rest of the world essentially shut down a large portion of their economies to stem the spread of the virus. And the markets reacted with veracity.

​Here's the 1 month market crash (Feb-March 2020) that will go down in history, for the dramatic speed in which the markets tanked.

​However, the rally from the bottom (see below) will also surely go down in the history books as well.

​The markets are forward looking and determined that the economy would come back. They rallied well ahead of any vaccines being developed, let alone any being approved, and well before Covid rates began to come down.

​When looking back over the past 10 years (see below), we can see that the market volatility in 2020 isn't too much out of the ordinary. The markets don't move in straight lines. Understanding this and not being rattled could be considered a modern day super power. 

How about we go back and look at the profits of some of the largest U.S. companies from the time of the space race to the global pandemic (a little over 50 years). The gray bars show economic recessions.

​This chart is very telling...company profits are volatile, recessions are quite common, and most importantly companies continue to find ways to grow their earnings over time. 

So what can we learn from all of this?

1. Markets are volatile,
2. Earnings are even more volatile,
3. Recessions happen somewhat regularly, and
4. We can expect much of the same in the future.
5. Similar to driving a car, the markets look to the future through the windshield, not the rear view mirror.
6. Investing isn't rocket science, however understanding some of the fundamental drivers of the markets and the economy can provide some psychological comfort when determining how you should be invested.

-Paul R. Rossi, CFA