On the Tail of a Black Swan, Market Trends to “Normal”Sheaff Briefs Editor
As far as black swan events go, the COVID-19 pandemic would certainly qualify for the title. Back in a 2007 book, finance professor Nassim Nicolas Taleb used the phrase “black swans” to describe very rare and impactful events that could not have been predicted. In terms of the stock market, Taleb characterized the 2008 financial crisis as a black swan event.
While many consider the 2020 pandemic to be a second example of a black swan event, Taleb believes the coronovirus should be named a “white swan.” Authorities in the U.S. had plenty of warning of the dangers while the virus was still confined to China, the author opines in The New Yorker magazine. Of course, hindsight being 20/20, with any catastrophic event there is often widespread insistence that the so-called black swan should have been anticipated by alert observers.
So, as investors emerging from the pandemic, are we are finding ourselves on the tail of a black swan or a white one?
Whichever the conclusion, Dave Gilreath of Sheaff Brock Investment Advisors finds a strong parallel between the aftermath of events in 2008 and the aftermath of 2020…
- Following the severe recession of 2008, the stock market began an enormous growth period that lasted more than eleven years.
- After plummeting in March 2020 at the onset of the pandemic, the market turned sharply upward, beginning a robust “bull” period of growth.
In the “wake” of the swan, what can investors expect? The economy cannot grow briskly—nor can a bull sprint—indefinitely,” Gilreath observes. Instead, over the coming one-to-three years, he anticipates, the market will become “more normal,” delivering returns characteristic of historical averages. He anticipates a “slower leg” of the market climb, with the Dow Jones Industrial Average resuming its journey to reach 50,000 by the year 2027.
As was true in the aftermath of the 2008 recession “black swan,” the years following the pandemic “black swan” event will be characterized by the stock market—following a remarkably abnormal period—returning (probably in fits and starts) to normal.