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Nothing May Derail the U.S. Economy In the Long Run

publication date: Mar 29, 2021
author/source: Brian Nelson, CFA

Image Source: Federal Reserve Bank of St. Louis. U.S. gross domestic product is back on the upswing, and we fully expect the U.S. economy to recover, and then continue its expansion in coming years. U.S. GDP, January 1947 through October 2020.

Warren Buffett may have said it best in Berkshire Hathaway’s 2020 Annual Report: “Never bet against America.”

By Brian Nelson, CFA

The long-term U.S. gross domestic product (GDP) chart provides a good lesson in perspective. For one, look at how resilient the U.S. economy has been during the post-World War II era.

Remember our “Stay Optimistic. Stay Bullish. I Am” article we wrote in mid-May 2020 and then republished again in early June 2020? The S&P 500 was trading below 2,900 in mid-May 2020. Now it’s nearly 4,000!

That article was a huge value add at the time because it helped investors keep perspective. One of the first rules of successful investing is to maintain a healthy perspective. Those that don’t often find themselves making unforced errors.

If you recall, less than a couple months after the March 2020 bottom, many investors were running away from the markets--not running toward them like us. In early May, we said we had never been more bullish and went to "fully invested" in the newsletter portfolios in late April 2020.

The second reason why we like the long-term U.S. GDP chart is that it shows that total U.S. GDP during the worst of the COVID-19 economic meltdown was still roughly equivalent to that of mid-2017.

That’s really saying something important: The COVID-19 economic crisis took total U.S. economic activity to levels not of 2010 or 2000 or 1990 or 1980, but to levels of mid-2017 -- just a few years ago!

Reading the scary media headlines during March and April 2020, however, one might have thought there was a bigger drop in total U.S. economic activity from COVID-19, but the numbers say otherwise.

You can barely see the impact on the chart. Go ahead – zoom in on the chart.

In the grand scheme of things, COVID-19 was almost a non-event, especially for long-term investors. Perspective helps to build context and leads to another important consideration when making investing decisions: Don’t overreact.

This brings us to recent developments. Whether it’s thinking about panicking over the Suez canal blockage, the fire sale at Archegos Capital, or modest spikes in COVID-19 cases, keep perspective. There may truly be nothing that derails the U.S. economy in the long run.  

This note is but a brief reminder that whenever you are spooked by the media headlines, just pull up the long-term U.S. GDP chart here. Things are going to be okay. Global trade will endure, contagion (if any) from Archegos Capital will subside, and we’ll get through COVID-19 just like we did with the Spanish Flu a century ago--and we will once again prosper.

COVID-19 may have been the worst economic disaster since the Great Depression, but it was but a blip on the long-term trend of U.S. economic growth. Warren Buffett may have said it best in Berkshire Hathaway’s 2020 Annual Report: “Never bet against America.”

We remain bullish on the markets over the long haul. In the short term, the S&P 500 is trading slightly above our fair value estimate range of 3,530-3,920 at this time (the S&P 500 is trading at 3,956). The biggest risk to the markets for long-term investors remains the impact of price-agnostic trading (any trading not focused on intrinsic value analysis), as outlined in the book Value Trap.

For now, stay focused on your long-term goals. Don't sweat today's headlines.



Banks (Archegos): CS, NMR, GS, DB, MS, MUFG, XLF

Aluminum (Suez blockage): AA, CENX, KALU, CSTM, JJU, IYM

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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, and IWM. Brian Nelson's household owns shares in HON. Some of the other securities written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.

1 Comments Posted Leave a comment

Detlev Tiszauer (Fort Pierce)

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