Worst December Since the Great Depression? There Is More To The Story

Worst December Since the Great Depression? There Is More To The Story

If you have been following the markets or the news, you have undoubtedly seen the common drumbeat that the stock market is poised to have its worst December since the Great Depression.  That doesn’t sound good.  We thought we should dig into the numbers a bit to find out how bad this really is.  First, the articles are right.  The S&P 500, with about three hours left until the end of trading on December 31, 2018, is showing a -9.6% loss for the month.  That would rank as the second-worst December ever.  The articles don’t tell you that anything more than a -5.8% loss would be able to grab the same headline (the worst loss in December, not occurring during the Great Depression, was -5.8% in 2002).  I’m not saying a -5.8% loss isn’t terrible, but I’m not sure it’s in the same category as a headline of “worst since the Great Depression.”

When we look at all months (not just December), the current loss in the S&P 500 doesn’t even rank in the top 20 worst losses.  In fact, as it stands now, it is #29, putting it in the worst 2.5% of months since 1926.  Unfortunately, while this is unpleasant, it is not outside the realm of normal.  Based on history, we would expect to see a month like December about once every 3.5 years.  While we consider all the statistics, here are what some of the key takeaways are:

  • It doesn’t matter too much– unless you have all your money in stocks and need to cash it in immediately, the market’s monthly gyrations don’t matter too much. Time IN the market matters, and those who have 5 or 10 years before they need to touch their stock investments have a very high probability of seeing gains from these levels.
  • Diversification helped– while US stocks were hit hard in December, International Stocks (-6.3%), Emerging Market Stocks (-4.7%), and Bonds (+1.5%) all lessened the blow. Being diversified may not have generated a positive return, but it certainly smoothed out your ride during a tough month.
  • News headlines sell– newspapers and media outlets are not paid based on subscription sales and eyeballs on their websites. Think if they wrote, “Stock Market on Pace for 29thWorst Monthly Loss on Record”.  No one would read the article.  As you are reading any analysis, you should always ask yourself, does the author have a bias?  He/she almost always does.  Media is trying to get your eyeballs; stock managers want you to be optimistic and buy their fund, bond managers want you to be pessimistic and buy their fund.  Independent advisors are probably one of the only sources of news/commentary that tends to be thinking about the client’s interest.

We wish all of you a pleased holiday and a prosperous New Year!

Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.

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