Please vote here if you think there will be positive returns for IWM from the close of April 30th until the close of the end of the month of May.
Please vote here if you think there will be negative returns for IWM from the close of April 30th until the close of the end of the month of May.
The US has already entered a recession. Almost all of the proven macroeconomic and technical (breadth, volatility, etc.) indicators are signaling further downward momentum for equities.
As hedge-fund billionaire and self-taught historian Ray Dalio said Sunday on Meet the Press, time will tell if it will be something more. In other words, he implied there could be a second Great Depression.
With all the economic and political similarities, I'm fearful the US may be repeating the late-1920s and 1930s, complete with government fiscal and monetary blunders. As always, there will be ways to make money in the market during the coming years, but many will suffer from the economic hardship. Sad.
Don't equities usually go up during a recession? I looked at the last century of recessions in the US and counted 16 of them. The S&P 500 (or its equivalent) went up in 11 of them and down in 5.
True!!
| Recession | Start Date | End Date | Start Value | End Value | Change | Up/Down |
|---|---|---|---|---|---|---|
| 1929-1933 | Aug 1929 | Mar 1933 | 29.58 | 6.21 | -79.0% | Down |
| 1937-1938 | May 1937 | Jun 1938 | 12.48 | 8.96 | -28.2% | Down |
| 1945 | Feb 1945 | Oct 1945 | 15.36 | 17.36 | +13.0% | Up |
| 1948-1949 | Nov 1948 | Oct 1949 | 16.67 | 18.40 | +10.4% | Up |
| 1953-1954 | Jul 1953 | May 1954 | 25.19 | 28.04 | +11.3% | Up |
| 1957-1958 | Aug 1957 | Apr 1958 | 43.92 | 48.25 | +9.8% | Up |
| 1960-1961 | Apr 1960 | Feb 1961 | 55.62 | 69.79 | +25.5% | Up |
| 1969-1970 | Dec 1969 | Nov 1970 | 106.78 | 109.82 | +2.8% | Up |
| 1973-1975 | Nov 1973 | Mar 1975 | 121.74 | 90.25 | -25.9% | Down |
| 1980 | Jan 1980 | Jul 1980 | 107.94 | 114.76 | +6.3% | Up |
| 1981-1982 | Jul 1981 | Nov 1982 | 122.48 | 145.86 | +19.1% | Up |
| 1990-1991 | Jul 1990 | Mar 1991 | 335.78 | 397.63 | +18.4% | Up |
| 2001 | Mar 2001 | Nov 2001 | 1265.80 | 1076.90 | -14.9% | Down |
| 2007-2009 | Dec 2007 | Jun 2009 | 1468.36 | 877.50 | -40.2% | Down |
| 2020 | Feb 2020 | Apr 2020 | 3398.77 | 3100.61 | -8.7% | Down |
Thanks, Whychliffes — clearly you’ve done your research, and I appreciate the historical context.
That said, there’s an important nuance that often gets overlooked in recession/performance discussions: the NBER declares recessions with hindsight. Their calls typically come well after the fact, and one of the indicators they consider is the stock market itself.
So we end up in a bit of a circular situation:
→ A recession period is partially defined by a market decline, with the end marked in part by a market recovery
→ Then we analyze how the market performed during that same period — which the NBER has already factored in
→ It becomes hard for the NBER to continue calling it a deep recession when the stock market has already staged a booming recovery (which they know has occurred — with full 20/20 hindsight)
That makes the whole exercise somewhat arbitrary — especially when it comes to the end of a recession, which is always defined retroactively. By the time the NBER declares it over, the market may have already rallied significantly — in part because of how they define a recession.
Not only are they responding to a recovery in the market, but they also have the benefit of hindsight — they know with complete certainty that there wasn’t a second leg down which we can never be 100% sure about at the time.
This makes it difficult to rely on NBER-dated recessions for forward-looking investment decisions. Historically, the market bottom tends to occur around the midpoint of the NBER-defined recession — which, ironically, only becomes visible long after the fact.
So my question is different:
Rather than focusing on the arbitrary start and end dates of a “recession” declared by the NBER, I’d want to know whether there’s a significant drawdown within the NBER-declared window — and how one might time that decline (if choosing to time it at all).
BTW, I can’t vote on my own post above, but near the end of the month here, I’m going to cast my vote: May will be a down month — but the recovery will begin shortly thereafter. I will not be changing my holding weights based on my predictions (I do adjust somewhat based on volatility).
I like to assign probabilities to my predictions. I’d say there’s about a 55% chance I end up being right after the close of May 31. I’m not highly confident in that call (so thumbs up on a down month and not a heart).
Main reason for my view: I don’t think Powell is especially concerned with making the current administration look good. He’ll focus on finishing the job of taming inflation — even if that means risking a mild recession. In other words: he’ll want to see inflation clearly under control before cutting rates. We might see a few modest quarter-point reductions later in the cycle — but only if they don’t compromise the broader goal of sustained price stability.
No Powell put this time around, in my view.
The beginning of a recession is usually not declared by the NBER until many months after it has started. That means it would be impossible to conduct any market timing around a recession call by the NBER. What I was trying to point out is that if you think a recession is coming up or even if you think it's already here, that's really not a good reason to diminish your exposure to US equities. It might actually be a good reason to increase it.
I agree. The same point I made in my post I believe! True of the beginning and end of the recession. Retrospective NBER recession calls alone are arbitrary and meaningless for predicting the market. Something else needs to be considered or added for timing the decline and the rebound that is often seen in retrospect. Like you, I am unaware of any opinions coming from the NBER about a recession at this time. But if Chawasri is right that we are in one now it will not stop the NBER from saying it started last month or earlier this month (with hindsight).
What the NBER does is a little like shooting at the side of a barn and drawing a target around the center of the holes afterward.
Also in agreement again I think, is that I'm not changing my allocations based on my prediction for May returns. A prediction I have little confidence in a that (55% confidence or 45% chance I am wrong). I'm not going to bet on those odds even if I am right about the odds.
From ChatGBT:
Broadly, from 1950 through recent years, May has been a modest month for the S&P 500. Historically, the index has averaged a return of approximately 0.2% in May, with a 61% probability of positive returns. However, in the past decade, May's average return has improved to around 0.7%, with nine out of the last ten Mays yielding positive results.​
I can't imagine anyone making market-timing decisions based on the NBER. I said we're in a recession because of the market's decline and GDP being negative for the first quarter. It's also likely to decline in the second quarter, which is the definition of a recession.
If Ray Dalio is right about the US going into a Depression, good luck holding equities through that. In the last Depression, the market declined 93%. However, I wouldn't use anyone's speculation about Recession or Depression either. My approach is 100% model-driven, and risk control is where I start when building a strategy. If you limit drawdowns, a portfolio's performance will double quickly and that's a HUGE advantage.
I feel that the combination of all the current administration's actions, including a sharp austerity push (DOGE), a multi-$trillion tax increase on the American people (tariffs), the economic benefit of legal immigration drying up (because people are afraid they'll be 'disappeared' to an El Salvador hell hole), and unemployment gaining steam (triggered by all the government layoffs), are tanking the economy and the market.
The trade war with China will leave store shelves empty in May. The 145% tariffs on China have already reduced trade by 40% (according to shipping traffic stats). As a result of all this, corporate income will decline sharply, and the market will reflect that decline.
However, all this about the economy is speculation and explanation: most importantly, my formula-based risk-control strategies have my portfolios mostly in cash since mid-late February. I will rely on those models to advise when to re-enter based on time-proven market-based measures.
Just my 2¢. In my opinion, what's most important is that investors have a strategy in which they have confidence and that allows them to sleep soundly at night. Protecting against drawdows using proven market-internal measures is what does the trick for me. But to each their own; that's what makes for a vibrant market!