Market Recovery: 2009 and Current
So far, the current market rebound has looked like what we saw following the market bottom in 2009. Many people were surprised to see such a quick recovery when economic conditions were still shaky. In the chart below, I compared the percent change from the low in 2009 and the current recovery.
The cause of the selloff was completely different during 2007-2009. But what is similar is the market began to rebound before economic conditions fully recovered. For example, the market hit the lowest level on March 09, 2009 and unemployment hit the highest level during October of 20091, 7 months later! In 2009, if you waited till unemployment reached the highest point, you had already missed a 60% rally in the market2. The market will always price in future conditions, good or bad.
Currently, the market is up +85% from the lows. As you can see for the chart, the 2009 recovery did have a correction around this time of the recovery. In my opinion, it would be perfectly normal if we had one again around this time. Corrections are part of the market and there will be more in the future.
Should you continue to invest? There is no crystal ball that will tell you what is in store for the next 6, 12, or 18 months ahead but we do know what has happened in the past. Betting against economic growth has yet to work out for any long-term investor. If you own highly speculative stocks or crypto, there is a chance you can expect more frequent and severe declines than the overall market.
What can you do to prepare? Evaluate your individual accounts and their goals. For example, maybe you have an investment account for a child that may go to college in the next couple years, it may be a good time to reduce your risk if you have not already. Or maybe you are fresh out of college and started a 401(k) plan with your work that you do not plan on touching for 30+ years, this could be an opportunity to increase risk.
Keep money in cash? Interest rates are extremely low and the bank pays you next to nothing to keep money with them. Even high yield savings account only pay around 0.50% interest. There is an opportunity cost to having too much money in cash. Which is why we recommend having an emergency fund with 3-6 months expenses and to invest the rest.
Many people cannot believe how fast the current market rebounded, but in fact it’s very similar to what happened in the 2009 recovery. The market could be overdue for a correction and the best thing you can do to prepare is make sure the risk you are taking with your investments is appropriate for the goals you are trying to pursue.
Correction: is a decline of 10% or more in the price of a security from its most recent peak.
1U.S. Bureau of Labor Statistics. Link here
2TradingView S&P 500 chart. Link here
Chart data from YCharts as of 5/12/2021 Link here
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