Late in November, the National Bureau of Economic Research (NBER) announced that we are now officially in a recession.  They have determined that the recession began in December of 2007.
 
The last two times a recession was officially declared, it was already over.  The NBER did not announce the 2001 recession until November 26, 2001. The recession ended the same month.  The prior recession, which stretched from 1990-1991 was announced in April 1991, a month after the recession ended.  We doubt this recession is over yet, but the stock market does not need the recession to be over to begin its recovery.
 
On Friday, December 5th the Department of Labor released the weakest employment data in three decades and a dramatic jump in the unemployment rate.  Despite the bleak economic news, the Dow rallied 3% on December 5th, and opened the new week with another 3.5% rally the following Monday.  The moral of this story is: History proves that making investment decisions based on economic news is a loser's game. 
 
During the 10 years ending November 2008, the S&P 500 returned -0.93% per year, including dividend reinvestment. This is a cumulative loss of 8.95% over 10 years.
 
So what kind of investment opportunities are presented when you have 10 years of terrible performance?
 
The Answer*: When ten year annual returns fall to 1% or less, the next ten years produce an average cumulative return of +183%.  The worst ten year return was +101% (Q4 1938 - Q4 1948), with the best being +325% (Q3 1974- Q3 1984). 
 
It requires courage to stick with your discipline in stocks when the economic headlines are ugly, but the future rewards can be great.  The stock market is presenting you with one of the great buying opportunities of a lifetime. It is time to rebalance your portfolio and return your stock allocation to where it was when the recession began.
 
*Statistics provided by Leuthold Weeden Institutional Research