A booming economy. Animal spirits in the financial markets pushing speculative stocks up to unheard of valuations. Rising inflation pressures pushing bond yields upward. An overseas war dominating the news cycle…
Sound familiar? The second half of 2020? 2021? Early 2022?
No.
It was 1969.
After enjoying a multi-year rise for all manner of financial assets and enjoying years of speculative gains, by late 1968 the good times for the financial markets simply stopped. For no apparent reason.
In fact, while the economy was booming, stocks turned and started falling for the next eighteen months. By the time May 1970 finally rolled around, stocks had fallen by roughly 36%. Reacting to rising inflation pressures, interest rates started rising which pushed bond prices down as well.
Yes, 1969 was a year where both stocks and bonds moved together, downward.
As 1968 came to a close, there were no warnings of the difficulties ahead. Everything seemed great. It all came as quite a surprise as a number of prominent stock-exchange member firms failed and a stock-market holiday was declared by President Nixon.
In the same way, in the Spring of 1970, there were no forewarnings that the downturn was ending. It just did.
Even today, more than sixty years after the fact, it seems amazing that during and concurrent with one of the longest and strongest booms in our economic history, markets could somehow become so unhinged. But, they did.
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So, what can we learn from that set of circumstances that seem to be so eerily similar to today’s world?
Markets are often unpredictable. That’s the nature of the beast. Tough market periods have happened many times before, but so far, they always have run their course.
It’s not a tough market environment that will affect your future financial well-being. It’s how you react during that tough market environment that will make the difference.