The Worse Recession That Never Happened

The 2023 non-recession

By mid-2022, every single investment company our team spoke with predicted a recession in 2023.  The only difference was how deep. The recession that never happened is not the first time the analysts got it wrong.  As the saying goes, they predicted 10 of the last 5 recessions. Michael Gapen, chief US economist for Bank of America called 2023 “the so-called most widely forecasted recession in the history of mankind” His point as written in Yahoo Finance on December 28th was that consumers and businesses expected a recession, so they prepared by borrowing ahead of time at cheaper rates. This kept them insulated from the impact of higher rates which would have sent us into a recession. I like our explanation better. Sometimes they just get it wrong, and that’s OK.  Especially for those who didn’t try to time the markets.


In all fairness to the analyst community, there have been 6 inflationary episodes (not including the one we are in currently) since WWII. During the same period, we have had 13 recessions.  Each of the 6 inflationary episodes were closely followed by recessions.  In fact, we spent most of the 1970s in a state of inflation that hosted 4 recessions from 1969 to 1982.  You would think the stock market crash of 2001 (AKA the bubble burst) and 9/11 would have been met with inflationary due to Gov’t stimulus, right?  Not even close.  We had to wait till 2008 to see the next period of inflation.  Key takeaway – significant economic episodes are difficult to predict and even harder to try to time the entry and exit of investments.

The Election

Oh, and there is that.  We can’t have a discussion about the markets in an election year without taking a historical perspective; so here goes.  According to the 2021 Dimensional Funds report, “the market has been favorable overall in 20 of the 24 election years from 1928 to 2020, only showing negative returns four times”. Year three of a president’s term is usually the strongest year for the market, followed by year four (then the second, and finally the first). The S&P 500 index doesn’t significantly favor either party.  I like to say that Wall Street is not blue or red, it is green($).

OK, here is where the hate mail comes in. Between 1968–1978 and 2000–2009, both under Republican presidents, the S&P 500 remained relatively stagnant. In contrast, the S&P 500 advanced under every Democratic president since 1933. Another study found in found that since 1947 the stock market (S&P 500) posted an average annual total return of 10.8% under a Democratic president, compared to 5.6% for a Republican president.  It should be noted that external forces such as the oil crisis in the 1970s and the terrorist attack on 9/11 may have understated stock market returns under Republican presidents. The same study showed that the market initially responded better to a Republican victory, while a Democratic victory tends to outperform in the long term.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal. No strategy assures success or protects against loss. 

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