{"id":6970,"date":"2022-10-06T11:27:37","date_gmt":"2022-10-06T16:27:38","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-ca\/newsletters\/history-lessons\/"},"modified":"2023-11-03T09:48:46","modified_gmt":"2023-11-03T13:48:46","slug":"history-lessons","status":"publish","type":"page","link":"https:\/\/www.rbcwealthmanagement.com\/en-ca\/newsletters\/history-lessons","title":{"rendered":"History lessons"},"content":{"rendered":"\n

History lessons<\/span><\/h1>\n

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By Jim Allworth<\/strong><\/p>\n\n\n\n

The impact of disruptive geopolitical events on equity markets is usually short \u2013 measured in days \u2013 and the ground lost is regained fairly quickly. However, the deepest and most drawn out have been those which produced a sustained rise in energy prices.<\/p>\n\n\n\n

As a result, the Russia\/Ukraine war is going to have a debilitating effect on developed economies, some more than others. Higher fuel prices can act like consumption taxes, reducing the amount of disposable income available to spend on other goods and services, many having a bigger multiplier effect on overall GDP growth.<\/p>\n\n\n\n

This is coming at a time when the U.S., Canada and several other developed economies were in the process of shifting from goods-driven expenditure to services-driven. Work-from-home and the unavailability of dining out, travel and other services resulted in heavier-than-normal spending on goods, pulling a considerable portion of future demand forward and leaving a weaker outlook for goods producers as spending swings toward the reopened services sector.<\/p>\n\n\n\n

Weak manufacturing new orders are likely to be one result. This is sure to provoke debate about whether something worse than a slowdown is in the offing. We don\u2019t think it is, despite the prospect of further central bank tightening. But with long-held estimates of above-trend GDP growth for 2022 now being revised lower as the impact of sanctions on already tight energy markets and inflation are factored in, there could be room for further volatility in equity markets over the coming months.<\/p>\n\n\n\n

Despite this darker outlook, all seven of our leading indicators of U.S. recession continue to indicate no such downturn is in sight.<\/p>\n\n\n\n

It\u2019s worth remembering why getting the economy right is \u201cJob One\u201d for an investor. And the chart paints the picture clearly.<\/p>\n\n\n\n

The march of history<\/h2>\n\n\n\n
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Compound growth rates since 1945:
\n S&P 500 Index 7.3% per annum
\n S&P 500 Earnings per Share 7.3% per annum
\n U.S. Nominal GDP 6.3% per annum
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The black line traces the path of the S&P 500 Index from the end of 1945 until today. It is plotted annually \u2013 that is, there is only one data point per year, eliminating all the volatility that goes on between each Jan. 1 and Dec. 31. While there are plenty of ups and downs, the rising trend of stock prices is clearly evident over the 76-year time span.<\/p>\n\n\n\n

One can easily spot some of the most challenging bear markets:<\/p>\n\n\n\n