While economists and market prognosticators attempt to forecast whether or not trade policy out of Washington DC will push the economy into a recession, we think investors should be asking a different question – should I consider putting excess cash to work right now? Or at the very least, should I be rebalancing my portfolio in light of the recent selloff?
While it’s too soon to determine whether or not economic data will deteriorate, consensus has quickly shifted towards flat to negative GDP growth over the next few quarters. Even President Trump has admitted to his close advisors that his trade policy could trigger a recession. But wait a minute – why would I put money to work right now if there is a potential recession on the horizon? Don’t we have time to wait and let the dust settle?
The Cost of Waiting for Clarity
The COVID-19 pandemic provides a clear example of why waiting can be costly. At the start of the pandemic – investors universally agreed that locking down the economy would cause a recession. Stocks cratered in anticipation and many investors, anticipating further declines, opted to stay on the sidelines.
However, before earnings even began rolling over, markets put in a bottom and never looked back. In fact, markets reached their pandemic lows thirteen months before earnings would bottom. U.S. gross domestic product also continued to decline for three months after the market began its recovery. Investors who waited for economic data to improve missed as much as 70 percent of the market rebound.
These events illustrate a crucial point: By the time economic indicators confirm that a recovery is underway, markets tend to be well off their lows.
S&P 500 Price Bottoms before Earnings/GDP
Markets Move Ahead of the Economy
The behavior of financial markets during the pandemic is not an isolated event. Since 1957, across every bear market, stock prices have typically bottomed an average of nine months before corporate earnings do. This recurring pattern highlights the role of the stock market as a discounting mechanism. In other words, markets anticipate and price in future economic developments long before they are reflected in earnings reports or economic indicators.
This means that trying to time the market based on the release of economic data is often a losing strategy. By the time investors receive confirmation that conditions have improved, they have likely already missed the boat.
A Proactive Approach to Investing
Rather than sitting idle during downturns, investors should consider whether to rebalance their portfolios or put excess cash to work. This approach is not about attempting to perfectly time the market. Instead, it is about positioning for the long term, recognizing that markets recover well before the headlines do.
Acting decisively during uncertain times requires discipline, but history shows that it often leads to better outcomes than waiting for all signals to turn green.
Independent, Objective Advice You Can Trust
At Legacy Private Trust Company, we understand that market uncertainty creates questions. That is why we provide guidance rooted in independence, objectivity, and a deep understanding of your unique financial picture.
As an independent firm, our advice is always driven by what is in your best interest. Every decision we make is designed to support your long-term goals and financial well-being. As a client, you will gain access to experienced professionals who know your priorities and values. These experts serve as dedicated partners who recognize the complexities of family dynamics, personal ambitions, and the ever-changing market landscape.
If you are seeking clarity, strategy, and a trusted advisor to help you navigate what comes next—our team is here to help.
If you are a Legacy client and have questions, please do not hesitate to contact your Legacy advisor. If you are not a Legacy client and are interested in learning more about our approach to personalized wealth management, please contact us at 920.967.5020 or connect@lptrust.com.
This newsletter is provided for informational purposes only.
It is not intended as legal, accounting, or financial planning advice.
