We have just experienced one of the strangest quarters that I can remember. At the beginning of June, Goldman Sachs research indicated that all of the return for the S&P 500 year-to-date through May was attributed to just seven stocks; the other 493 stocks in the S&P 500 have an average return of zero, nada, zilch. How did that happen?
The economy is hanging in there better than most experts suggest, since rising interest rates are not actually stopping consumers from living their daily lives. We maintain our view that we will either escape a recession all together or have a very mild one. We are not basing that on our business, but on feedback we get from others. Let’s take a look.
In the 30+ years I have been in this business, I do not recall a time when so many were so convinced that a recession was inevitable… which is precisely why I doubt a severe recession will occur this year. The economy flows in a way not dissimilar to nature. Nature has its seasons, the economy has the business cycle; the difference is human psychology.
For as long as I can remember, there has been a myth that investors must reduce their exposure to stocks and increase their exposure to bonds as they approach retirement. This advice is based on the fallacy that if one is exposed to the stock market and we have a bear market (as we do today) at or close to one’s retirement, then his retirement will be forever impacted. That is wrong.
As our economy slows and inflation remains stubbornly high, one must wonder if we will ever learn our lessons. We have been here before and we know what causes this, yet here we are once more. We did not learn the lesson of the 1970s; but why?
