It has been a bit of a roller coaster ride lately.
During 2020, at the onset of Covid, global stock markets dropped by about 35%. In 2021, as Covid subsided, and the sugar rush caused by ultra-low interest rates took hold, global stock markets soared, reaching new all-time highs. In 2022, as inflation surged, central banks around the world took the proverbial punch bowl away by raising interest rates, causing stock markets to drop 20%. Year-to-date 2023, global stock markets have clawed back about a third of those 2022 losses, but the short-term direction of the stock market remains as uncertain as ever.
I don’t know if we are on the cusp of a severe recession which would cause the stock market to drop again, or, if inflation has already peaked and will quickly drop back down to 2% without a recession, which may cause the recent the stock market rally to continue.
Nonetheless, the importance of a long-term perspective is clearly illustrated in an interesting article in the Globe & Mail by Norman Rothery. The analysis indicated the chance of making a profitable investment in the TSX Total Return Index over various time periods between January 1956 and September 2020.
If you bought the TSX index at the end of any randomly selected month during the study period, there was a 62% chance the TSX climbed the following month.