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Where's the Kaboom?

Where's the Kaboom?

April 08, 2024

According to Wikipedia, Hare-Way to the Stars is a 1958 cartoon directed by Chuck Jones. It was released by Warner Bros. as part of the Looney Tunes series and stars Bugs Bunny and Marvin the Martian.

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The cartoon begins with Bugs Bunny, feeling the effects of mixing radish juice with carrot juice the night before, unknowingly climbing out of his hole and into a rocket ship that is about to be launched into space. He realizes what has happened once he screws open the tip of the ship and is immediately hit by a satellite, and lands on what appears to be a space station.

Once there, Bugs meets Marvin the Martian, who is trying to blow up the Earth with his Illudium Q-36 Explosive Space Modulator because "Earth obstructs his view of Venus." Marvin lights the fuse,  and just before it explodes, an alarmed Bugs quietly extinguishes it and steals the explosive, as Marvin quickly discovers what has happened - giving rise to one of his most famous lines, "Where's the kaboom....there was supposed to be an earth-shattering kaboom!!!"

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For those of you who would like a reminder or have never seen this cartoon, a YouTube clip is provided below.

Marvin Martian - Where's the Kaboom?

In much the same way, our financial media always seems to be looking for the nextearth-shattering kaboom! You see, I have now been a CFP for over 30 years. I started in the business in August 1987, just a few weeks before the stock market crash in October of that year. As many of you know, one of my claims to fame is that I was in the business during the October 1987 stock market crash, and none of my clients lost any money. That is largely because I had not been in the business long enough to really have any clients yet!!

Subsequently, I have lived and walked with clients through two Persian Gulf wars, the fall of Long-Term Capital Management, the bubble, 9/11, the subprime mortgage crisis, the failure of Lehman Brothers/AIG, multiple fiscal cliffs, the COVID-19 coronavirus pandemic, government shutdowns, massive fiscal and monetary stimulus, and the highest inflation in 40 years, which led to the Fed raising interest rates at the fastest pace in 40 years.

Over that time period, we have lived through four separate recessions, according to the National Bureau of Economic Research. NBER is an American private nonprofit research organization. The NBER defines a recession as "a significant decline in economic activity spread across the economy, lasting more than two quarters which is 6 months, normally visible in real gross domestic product (GDP), real income, employment, industrial production, and wholesale-retail sales".

As you can see in the chart below, we have also experienced nine different bear markets, which are defined as stock market declines of 20% or more, since I entered the business in 1987. You will note that four of those drops hit 20% on an intraday basis; however, when the market closed, it was just less than a 20% drop. As an advisor fielding phone calls from clients who are nervous, I can tell you firsthand that in each of those scenarios, clients responded as if we were in a bear market.

You can clearly see from the chart above that each time the market went through one of these significant downturns, it was temporary!! The market always recovered to reach new highs. Sometimes it happened quickly, like it did after the federal government and the Federal Reserve Bank opened the floodgates of liquidity and stimulus following the COVID-19 outbreak. Sometimes, it took several years to move back to a new high, like we saw after the market was cut approximately in half during the downturns that started in calendar years 2000 and 2007. But here is the important point of today's post: it always came back.

If history clearly shows us this pattern, why do people get so nervous every time they experience one of these events? In a single word, media!! To expand on that thought, the combination of 24-hour cable news media and social media platforms both screaming that the sky is falling creates an emotional response in most people. This emotional response is real, even if it is not rational or based on economic and stock market history. One of the most important things that I have learned in my decades of doing this, is that it is OK to feel the feeling. However, it is almost always detrimental to act on it.

Allow me to illustrate. Clients who were born in 1962 are turning 62 this year. Therefore, to put things in context, we can look at three important data points, both in 1962, the year clients were born, and where they closed in 2023.

1)  The S&P 500 closed out 1962 at 63. It ended this past year at 4,770.

2)  The cash dividend paid out during 1962 was $2.15. Last year it was $70.30.

3)  The Consumer Price Index ended 1962 at 30. It closed out 2023 at 307.

To put it visually:

Source: S&P 500 Index Price & Dividends, CPI, 1962-2023

In looking at this chart, you can see that the price of the S&P 500 has increased 76-fold over the last 62 years. The cash dividend of the S&P 500 has increased 33 times, while inflation has only gone up 10 times. This means that for our clients’ entire lives, U.S. stocks have been the simplest and most effortless way of building real wealth, net of inflation while generating a dividend income stream that grows significantly faster than the rate of inflation.

Despite the media pounding a negative drumbeat consistently throughout my 30-plus years in the business, the sky has not fallen, and the end of the world has been delayed once again. So, I join Marvin the Martian in asking, “Where is the kaboom?” According to the media, there should have been multiple earth-shattering kabooms that never came to pass. Please remember this the next time you hear the media screaming like Chicken Little from the rooftops. Likely, your best course of action will be to turn off the TV or the computer and go do something fun and meaningful with the people you love.

The CFPs of Impel Wealth Management wanted to take a moment to remind you of this. We share messages like this with you regularly as a form of financial vitamin C. We know that your body and your psyche do not store this. Therefore, we must give you a consistent dose to combat the negative news and noise of the world. As always, if you have questions about your situation, please reach out to us. We are here for you as we continue “Moving Life Forward.”

© 2024 Jesse Hurst

The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

Investors cannot directly invest in indices.

Featured blog image source: RUANGSRI