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Is March 2024 a Good Time to Invest in the Stock Market?

Published 03/02/2024, 06:55 AM
Updated 03/12/2024, 09:15 PM

Let's see what historical macroeconimic data tells us about that.

Since the U.S. is the lead economy, representing about 25% of the global economy in terms of absolute GDP in dollars, and being the dollar the reserve currency, we will focus on the U.S. data. Nothing indicates that the U.S. is going to lose this leadership soon, and it has been in the lead for around a century already.

First of all, here is today's data. The SP500 is at 5.137,08, literally a new all time high. The U.S. interest rate is 5.5%. This is a high interest. The unemployment is low 3.7%, and it has been like that for several months. Finally, inflation is at 3.1%, an acceptable rate, after being as high as almost 9% back in 2022. That is why the interest got so high recently, to make sure inflation came down as it did. Now that both unemployment rate and inflation are within the Fed targets, there is no need to change the interest rate. Focusing only on this data, we can only say we are in front of a strong economy. So this should not be a bad moment to invest. However, high interest rate is a warning sign.

Let's put that in the context of the following historical graph. It shows the SP500 value [black], the U.S. interest rate [blue], and with the recession periods [gried out]. 

fred-interest-sp500

We will look further back in time later. With this 10 year context what we can say is that, we only lived a similar situation in 2019, were the interest rate was relatively higher than before and the SP500 price was also high. Later when COVID hit, unemployment grew rapidly, SP500 plunged around 40%, and the Fed quickly helped lowering the interest rates. When the Fed helped, the economy recovered.

This is just one example, let's look further back in time. Here we can also see the 2008 crisis. And as you can see the pattern is similar. Interests and prices go up in a strong economy, then interest and price get stuck, and if a recession hits, prices go down, the Fed helps lowering the interest rates to help, and sooner or later the economy and SP500 price recovers.

fred-interest-sp500-2003

March 2024, also resembles 2006. SP500 was at its all time high, interest was high 5.25%, and the strong economy at that time based mostly but not only on the real state sector, as today we might say it is driven by the Tech sector and the recent AI developments. In 2006, things stayed good for a couple more years. In 2008 the crisis came, SP500 fell around 50%, and unemployment raised. Similarly, the fed helped lowering the interest rates, and the economy and the SP500 started to recover.
We could look back to 2001 and the dot-com bubble, or at the 10 recessions since 194. We will find not equal but very similar patterns. For example, as it is expected, every time a recession came, the Fed lowered interest rates and the recession ended.

fred-funds

Hence, in macroeconomic terms, a good moment to invest is one in which the interest rate is low, after being high. And the SP500 index price low, far below its highs. For example, between 20% to 50% below the previous highs. We usually find such moment in a recession period.

Does that mean that we should only invest when the interest is low and the price is low?
No, it can take years to find one of those. It will be certainly good if such a good moment comes in the future, but waiting can make us lose good years. E.g., in 2006 we still had 2 more good years, and in 2014 we still had 5 good years. But no one knows when the next crisis will come and how deep it will be. We just know that when it comes, when the Fed helps lowering the interest rates, chances are that is a great moment to invest, as historical data shows.


Is March 2024 a good moment to invest?
Given the current macroeconomic data, we can say it is not one of those clearly good moments. But the economy is strong, so it still seems an ok moment. One thing to watch is the interest rate. A high interest rate in the past, has been many times a warning sing. So we will stay vigilant.

In future articles, we will keep analyzing the macroeconomy as it changes. We will also analyze in more detail the last 10 crises. We will provide exact numbers of how different people could have invested during those crises and what would have happened. For example, compare an investor that invests monthly in the SP500 to one that invests more when the interest and the price are low.

We will keep checking until we find the next good moment to invest in the stock market. Stay tuned!

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