The Iranian war began in late February.
In a few weeks, the S&P 500 fell almost 10%.1
These losses were quickly erased as the stock market quickly returned to all-time highs.
Accordingly Bespoke Investment GroupThis marked the first time in the last 100 years that the S&P 500 reached new all-time highs in 11 trading days or less after falling 5-10%.
The grocery store needs to take the stairs up and the elevator down. Over the last 10 years or so, the elevator has gone down and the elevator has gone up again.
Check out these V-shaped heals:
This happened after the mini bear market of 2018. It followed the Covid Crash of 2020, which was the fastest rise to all-time highs following a 30%+ bear market in history. It happened after Independence Day, and it happened again with the Iran conflict.
The only time we didn’t get a V-shaped recovery was the inflation spike in 2022, but even that was more of a crisis. ordinary, non-recession bear market.
I wrote about it for the first time Market cycles accelerate in 2014. Vanguard’s head of fixed income had this to say about the phenomenon at the time:
One of the big differences between when I came to Vanguard and now is the speed of the markets. When news happens in 1981, you can sit and think about it. If something had happened abroad, it might not have affected the US markets, and even if it did, it would only last for a day or two. Geopolitics is much more important now. Everything is instantaneous. We always have to make sudden decisions without waiting.
Change has accelerated even more in the past decade. And it’s not just the stock market.
After the brief Covid recession, we experienced the fastest recovery in the labor market in history:
We went from 3.5% to almost 15% to 3.5% again in just two years.
The pandemic has also led to one of the strongest job markets we have ever seen. Job opportunities rose from 7 million in the pre-pandemic days to over 12 million at the height of the labor market frenzy:
And now it’s back down again. This is the speed of light in the labor market.
Workers have moved from gaining the upper hand in 2021 and 2022 to now worrying that AI will eliminate millions of jobs.
The oil market has experienced even greater ups and downs in the 2020s.
Price per barrel at $60 at the end of 2019 negative In early 2020, $37 rose to over $120 following the Russia-Ukraine war. Prices crashed soon thereafter, falling as low as $55 a barrel late last year, then briefly rising above $120 as the Iran war began. Now it’s close to $80.
Wow.
What are the interest rates?
Fed Funds rates remained at the floor for much of the 2010s following the Great Financial Crisis and subsequent economic malaise. The Fed tried to raise those rates again by the end of the decade, but the trade war slowed that down and then Covid brought rates back down to the floor:
When inflation hit Jerome Powell, the company embarked on one of the most aggressive marches in history, raising short-term interest rates from 0% to over 5% in just over a year.
The 30-year mortgage rate rose from less than 3 percent at the end of 2021 to more than 8 percent in the fall of 2023.
Around the world, inflation rose from very low to very high and within a few years reached the average again:
One of the biggest reasons for most of these changes, other than the pandemic, was of course the incentives provided by the government.
The change in money supply supply also witnessed a massive rise followed by a pullback:
The challenging part of this type of movement is that it can be very difficult to deal with psychologically.
One of the reasons why consumer confidence has been so weak over the past few years is that prices and mortgage rates have risen too quickly. People did not have a chance to get used to the changes over time. It is a shock to the system that gas has gone from $3 per gallon to $4-5 per gallon so quickly.
You can’t always expect the stock market to recover in a V shape. A financial crisis or recession will occur, eventually leading to an expanding bear market. The labor market will not always recover this quickly. Mortgage loan interest rates will not have such a wide range in such a short time.
It is certainly possible that many of these moves can be explained by the pandemic and its consequences.
But I think we live in a world where markets move faster now due to the information age and government intervention, and this is here to stay.
What does all this mean?
- I’m more prepared to be wrong than ever.
- Strong views that are loosely held.
- The attractiveness of trade will increase exponentially.
- New risks will emerge.
- Be prepared for the possibility of more sudden crashes.
Just because markets move faster doesn’t mean you should. In a faster world, slowing down can be to your advantage.
Michael and I talk about fast-moving markets and more in this week’s Animal Spirits video:
Subscribe Compound so you won’t miss any episode.
Further Reading:
It’s Impossible to Ignore the Noise
Now here’s what I’ve been reading lately:
Books:
1It was exactly -9.1% from all-time highs.
