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EXPLAINING THE DECLINING GDP:
One, MOST of the decline was due to a decrease in INVENTORY investment, which – was BOOMING in the final months of 2021. r.
TWO, the economy also saw a decline in spending across the state, federal, and local governments…which, was likely fueled by the decrease of unemployment insurance, child tax credits, and stimulus.
Third, EXPORTS declined by 3.2%…or, in other words…less of OUR OWN goods and services were shipped and sold overseas…which, could LIKLEY be the result of the ongoing Shutdown overseas, along with the international tension.
And Fourth, we also saw an 8.5% decline in DEFENSE SPENDING, which CNBC said, knocked a third of a percentage point off the final GDP.
In terms of how a recession could impact the stock market:
From 1869 to 2018…there have been a total of 16 recessions which had POSITIVE stock market returns….in fact, of those positive recessions…the market went UP an average of 9.8%, during a time the GDP declined by 3%…. or, in other words…out of 30 recessions…HALF had no correlation whatsoever with lower stock values.
To take that a step further, since 1869…one study found that the correlation between GDP growth and stock market returns was nearly ZERO – and, on average, the US stock market peaks SIX MONTHS before the start of a recession.
According to AWealthOfCommonSense Blog…throughout EVERY SINGLE RECESSION SINCE 1945…the stock market has – at SOME POINT – seen a sell off…with the average drawdown coming in at a whopping 29.2%…
HOWEVER…the GOOD NEWS is that, even though there CAN be a rather abrupt sell off…by the time the recession is OVER, the market actually RECOVERS, and has posted an average PROFIT of 1.7%…with, an average gain of 15.3% the following 1 year….meaning, INVESTING DURING A RECESSION is one of the most profitable times to invest. Not to mention, in the 3 years following every single recession we have ever had…the market was 100% in the green.
If anything, Bloomberg notes that a bear market tends to be a better predictor of a recession…rather than a recession being a predictor of a bear market.
Now, that’s not to say that prices can’t go lower, or that – a recession could last way longer than anticipated, or maybe this entire thing is a fluke false alarm…but, based on EVERY other recession in the past…the best course of action is to simply stay invested…and KEEP INVESTING when times are bad…especially if we do see an actual recession.
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