Let’s examine what historic macroeconimic knowledge tells us about that.
For the reason that U.S. is the lead economic system, representing about 25% of the worldwide economic system by way of absolute GDP in {dollars}, and being the greenback the reserve foreign money, we are going to give attention to the U.S. knowledge. Nothing signifies that the U.S. goes to lose this management quickly, and it has been within the lead for round a century already.
To start with, right here is right this moment’s knowledge. The SP500 is at 5.137,08, actually a brand new all time excessive. The U.S. rate of interest is 5.5%. It is a excessive curiosity. The unemployment is low 3.7%, and it has been like that for a number of months. Lastly, inflation is at 3.1%, a suitable fee, after being as excessive as virtually 9% again in 2022. That’s the reason the curiosity acquired so excessive lately, to verify inflation got here down because it did. Now that each unemployment fee and inflation are inside the Fed targets, there isn’t any want to alter the rate of interest. Focusing solely on this knowledge, we are able to solely say we’re in entrance of a powerful economic system. So this shouldn’t be a foul second to take a position. Nevertheless, excessive rate of interest is a warning signal.
Let’s put that within the context of the next historic graph. It reveals the SP500 worth [black], the U.S. rate of interest [blue], and with the recession intervals [gried out].
We’ll look additional again in time later. With this 10 yr context what we are able to say is that, we solely lived an identical scenario in 2019, have been the rate of interest was comparatively increased than earlier than and the SP500 value was additionally excessive. Later when COVID hit, unemployment grew quickly, SP500 plunged round 40%, and the Fed shortly helped reducing the rates of interest. When the Fed helped, the economic system recovered.
This is only one instance, let’s look additional again in time. Right here we are able to additionally see the 2008 disaster. And as you possibly can see the sample is analogous. Pursuits and costs go up in a powerful economic system, then curiosity and value get caught, and if a recession hits, costs go down, the Fed helps reducing the rates of interest to assist, and ultimately the economic system and SP500 value recovers.
March 2024, additionally resembles 2006. SP500 was at its all time excessive, curiosity was excessive 5.25%, and the robust economic system at the moment primarily based however not solely on the true state sector, as right this moment we’d say it’s pushed by the Tech sector and the latest AI developments. In 2006, issues stayed good for a pair extra years. In 2008 the disaster got here, SP500 fell round 50%, and unemployment raised. Equally, the fed helped reducing the rates of interest, and the economic system and the SP500 began to get better.
We might look again to 2001 and the dot-com bubble, or on the 10 recessions since 194. We’ll discover not equal however very comparable patterns. For instance, as it’s anticipated, each time a recession got here, the Fed lowered rates of interest and the recession ended.
Therefore, in macroeconomic phrases, a very good second to take a position is one during which the rate of interest is low, after being excessive. And the SP500 index value low, far beneath its highs. For instance, between 20% to 50% beneath the earlier highs. We normally discover such second in a recession interval.
Does that imply that we must always solely make investments when the curiosity is low and the value is low?
No, it could take years to search out a type of. It is going to be actually good if such a very good second comes sooner or later, however ready could make us lose good years. E.g., in 2006 we nonetheless had 2 extra good years, and in 2014 we nonetheless had 5 good years. However nobody is aware of when the following disaster will come and the way deep will probably be. We simply know that when it comes, when the Fed helps reducing the rates of interest, likelihood is that could be a nice second to take a position, as historic knowledge reveals.
Is March 2024 a very good second to take a position?
Given the present macroeconomic knowledge, we are able to say it isn’t a type of clearly good moments. However the economic system is robust, so it nonetheless appears an okay second. One factor to look at is the rate of interest. A excessive rate of interest previously, has been many occasions a warning sing. So we are going to keep vigilant.
In future articles, we are going to maintain analyzing the macroeconomy because it modifications. We may also analyze in additional element the final 10 crises. We’ll present precise numbers of how totally different folks might have invested throughout these crises and what would have occurred. For instance, examine an investor that invests month-to-month within the SP500 to 1 that invests extra when the curiosity and the value are low.
We’ll maintain checking till we discover the following good second to put money into the inventory market. Keep tuned!
