What is Normal? (Part 2)

The stock market has been strong, earnings have been growing, but a commodity price surge threatens to derail consumer spending. What’s normal for the stock market during a recovery?

To look at historical averages, the first year of a recovery the market rises 30-40%, the second year 10-15%, the third year 5-10% and the fourth year stocks struggle.

The first year of this recovery the market roared, rocketing 60%. We need to think back to those times, though. In 2009 there were serious fears of a depression. Once those concerns had been allayed through TARP, stress-testing, and stimulus spending the market returned to recessionary levels about 25% higher.

So the first year’s return from these normalized levels was about 35%, right in line with historical averages. The second twelve months we saw a 16% return. So far in the third year the market has gone up another 4%, suggesting that historical patterns may continue. Interest rates are rising around the world (albeit slowly), profit margins are near their all-time highs, and economic growth is decelerating.

This suggests that while the bull may have further to run, its best returns may be behind it. There may be reasons that this cycle breaks the pattern, but we should keep a sharp eye out. Bulls are strong, but they don’t live forever.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-12T10:47:46+00:00May 17th, 2011|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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