Don’t buy it
Whenever stock prices move to the downside you’re going to hear about it. The newspapers and the TV news channels trip all over themselves to tell you what’s wrong and why it’s so very bad.
In the midst of a decline, those reasons sound mighty important and plausible. That’s what happened last week with all the talk of the yield curve inverting.
But when you look at long term stock market history, you can see that these are just small bumps along the road. The vast majority of these declines are buying opportunities.
Quick recap—Yield curve inversions tend to be good predictors of recession. So now everyone’s talking about a potential recession. But that’s just one figure among many.
The most recent US retail sales report suggests anything but recession. The numbers are downright strong here in the US. Similarly, US corporate earnings continue to grow, defying the negative expectations.
That doesn’t mean things are strong everywhere. Looking around the world there are many economies that are growing slowly or barely at all. That’s something we need to keep an eye on. We don’t want that to get worse.
But the current stretch looks quite a bit like 2015 and 2016, when certain parts of the economy were weak but a majority of the economy was still expanding.
You might call these “almost recessions” where growth slows but not enough to go negative. These periods tend to create opportunities for investors to own high quality companies at reduced prices. That’s how we’re viewing this most recent market weakness.