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Markets in a Minute

Black Swan Events: Short-term Crisis, Long-term Opportunity

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Black Swan Events COViD-19

black swan events

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Black Swans: Short-term Crisis, Long-term Opportunity

Few investors could have predicted that a viral outbreak would end the longest-running bull market in U.S. history. Now, the COVID-19 pandemic has pushed stocks far into bear market territory. From its peak on February 19th, the S&P 500 has fallen almost 30%.

While this volatility can cause investors to panic, it’s helpful to keep a long-term perspective. Black swan events, which are defined as rare and unexpected events with severe consequences, have come and gone throughout history. In today’s Markets in a Minute chart from New York Life Investments, we explore the sell-off size and recovery length for some of these events.

Wars, Viruses, and Excessive Valuations

With sell-offs ranging from -5% to -50%, black swan events have all impacted the S&P 500 differently. Here’s a look at select events over the last half-century:

EventStart of Sell-off/Previous PeakSize of Sell-offDuration of Sell-off (Trading Days)Duration of Recovery (Trading Days)
Israel Arab War/Oil EmbargoOctober 29, 1973-17.1%271475
Iranian Hostage CrisisOctober 5, 1979-10.2%2451
Black MondayOctober 13, 1987-28.5%5398
First Gulf WarJanuary 1, 1991-5.7%68
9/11 AttacksSeptember 10, 2001-11.6%615
SARSJanuary 14, 2003-14.1%3940
Global Financial CrisisOctober 9, 2007-56.8%3561022
Intervention in LibyaFebruary 18, 2011-6.4%1829
Brexit VoteJune 8, 2016-5.6%149
COVID-19*February 19, 2020-29.5%19N/A (ongoing)

* Figure as of market close on March 18, 2020. The sell-off measures from the market high to the market low.

While the declines can be severe, most have been short-lived. Markets typically returned to previous peak levels in no more than a couple of months. The Oil Embargo, Black Monday, and the Global Financial Crisis are notable outliers, with the recovery spanning a year or more.

After Black Monday, the Federal Reserve reaffirmed its readiness to provide liquidity, and the market recovered in about 400 trading days. Both the 1973 Oil Embargo and 2007 Global Financial Crisis led to U.S. recessions, lengthening the recovery over multiple years.

COVID-19: How Long Will it Last?

It’s difficult to predict how long COVID-19 will impact markets, as its societal and financial disruption is unprecedented. In fact, the S&P 500 reached a bear market in just 16 days, the fastest time period on record.

black swan events

Some Wall Street strategists believe that the market will only begin to recover when COVID-19’s daily infection rate peaks. In the meantime, governments have begun announcing rate cuts and fiscal stimulus in order to help stabilize the economy.

Considering the high levels of uncertainty, what should investors do?

Buy on Fear, Sell on Greed?

Legendary investor Warren Buffet is a big proponent of this strategy. When others are greedy—typically when prices are boiling over—assets may be overpriced. On the flipside, there may be good buying opportunities when others are fearful.

Most importantly, investors need to remain disciplined with their investment process throughout the volatility. History has shown that markets will eventually recover, and may reward patient investors.

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Markets in a Minute

Mapped: GDP Growth Forecasts by Country, in 2023

The global economy faces an uncertain future in 2023. This year, GDP growth is projected to be 2.9%—down from 3.2% in 2022.

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GDP Growth

Mapped: GDP Growth Forecasts by Country, in 2023

Since Russia’s invasion of Ukraine early last year, talk of global recession has dominated the outlook for 2023.

High inflation, spurred by rising energy costs, has tested GDP growth. Tightening monetary policy in the U.S., with interest rates jumping from roughly 0% to over 4% in 2022, has historically preceded a downturn about one to two years later.

For European economies, energy prices are critical. The good news is that prices have fallen recently since March highs, but the continent remains on shaky ground.

The map shows GDP growth forecasts by country for the year ahead, based on projections from the International Monetary Fund (IMF) October 2022 Outlook and January 2023 update.

2023 GDP Growth Outlook

The world economy is projected to see just 2.9% GDP growth in 2023, down from 3.2% projected for 2022.

This is a 0.2% increase since the October 2022 Outlook thanks in part to China’s reopening, higher global demand, and slowing inflation projected across certain countries in the year ahead.

With this in mind, we show GDP growth forecasts for 191 jurisdictions given multiple economic headwinds—and a few emerging bright spots in 2023.

Country / Region2023 Real GDP % Change (Projected)2022 Real GDP % Change (Projected)
🇦🇱 Albania2.5%4.0%
🇩🇿 Algeria2.6%4.7%
🇦🇴 Angola3.4%2.9%
🇦🇬 Antigua and Barbuda5.6%6.0%
🇦🇷 Argentina*2.0%4.0%
🇦🇲 Armenia3.5%7.0%
🇦🇼 Aruba2.0%4.0%
🇦🇺 Australia*1.6%3.8%
🇦🇹 Austria1.0%4.7%
🇦🇿 Azerbaijan2.5%3.7%
🇧🇭 Bahrain3.0%3.4%
🇧🇩 Bangladesh6.0%7.2%
🇧🇧 Barbados5.0%10.5%
🇧🇾 Belarus0.2%-7.0%
🇧🇪 Belgium0.4%2.4%
🇧🇿 Belize2.0%3.5%
🇧🇯 Benin6.2%5.7%
🇧🇹 Bhutan4.3%4.0%
🇧🇴 Bolivia3.2%3.8%
🇧🇦 Bosnia and Herzegovina2.0%2.4%
🇧🇼 Botswana4.0%4.1%
🇧🇷 Brazil*1.2%2.8%
🇧🇳 Brunei Darussalam3.3%1.2%
🇧🇬 Bulgaria3.0%2.9%
🇧🇫 Burkina Faso4.8%3.6%
🇧🇮 Burundi4.1%3.3%
🇨🇻 Cabo Verde4.8%4.0%
🇨🇲 Cameroon4.6%3.8%
🇰🇭 Cambodia6.2%5.1%
🇨🇦 Canada*1.5%3.3%
🇨🇫 Central African Republic3.0%1.5%
🇹🇩 Chad3.4%3.3%
🇨🇱 Chile-1.0%2.0%
🇨🇳 China*5.3%3.2%
🇨🇴 Colombia2.2%7.6%
🇰🇲 Comoros3.4%3.0%
🇨🇷 Costa Rica2.9%3.8%
🇨🇮 Côte d'Ivoire6.5%5.5%
🇭🇷 Croatia3.5%5.9%
🇨🇾 Cyprus2.5%3.5%
🇨🇿 Czech Republic1.5%1.9%
🇨🇩 Democratic Republic of the Congo6.7%6.1%
🇩🇰 Denmark0.6%2.6%
🇩🇯 Djibouti5.0%3.6%
🇩🇲 Dominica4.9%6.0%
🇩🇴 Dominican Republic4.5%5.3%
🇪🇨 Ecuador2.7%2.9%
🇪🇬 Egypt*4.0%6.6%
🇸🇻 El Salvador1.7%2.6%
🇬🇶 Equatorial Guinea-3.1%5.8%
🇪🇷 Eritrea2.9%2.6%
🇪🇪 Estonia1.8%1.0%
🇸🇿 Eswatini1.8%2.4%
🇪🇹 Ethiopia5.3%3.8%
🇫🇯 Fiji6.9%12.5%
🇫🇮 Finland0.5%2.1%
🇫🇷 France*0.7%2.5%
🇲🇰 North Macedonia3.0%
🇬🇦 Gabon3.7%2.7%
🇬🇪 Georgia4.0%9.0%
🇩🇪 Germany*0.1%1.5%
🇬🇭 Ghana2.8%3.6%
🇬🇷 Greece1.8%5.2%
🇬🇩 Grenada3.6%3.6%
🇬🇹 Guatemala3.2%3.4%
🇬🇳 Guinea5.1%4.6%
🇬🇼 Guinea-Bissau4.5%3.8%
🇬🇾 Guyana25.2%57.8%
🇭🇹 Haiti0.5%-1.2%
🇭🇳 Honduras3.5%3.4%
🇭🇰 Hong Kong SAR3.9%-0.8%
🇭🇺 Hungary1.8%5.7%
🇮🇸 Iceland2.9%5.1%
🇮🇳 India*6.1%6.8%
🇮🇩 Indonesia*4.8%5.3%
🇮🇶 Iraq4.0%9.3%
🇮🇪 Ireland4.0%9.0%
🇮🇷 Iran*2.0%3.0%
🇮🇱 Israel3.0%6.1%
🇮🇹 Italy*0.6%3.2%
🇯🇲 Jamaica3.0%2.8%
🇯🇵 Japan*1.8%1.7%
🇯🇴 Jordan2.7%2.4%
🇰🇿 Kazakhstan*4.3%2.5%
🇰🇪 Kenya5.1%5.3%
🇰🇮 Kiribati2.4%1.0%
🇰🇷 South Korea*1.7%2.6%
🇽🇰 Kosovo3.5%2.7%
🇰🇼 Kuwait2.6%8.7%
🇰🇬 Kyrgyz Republic3.2%3.8%
🇱🇦 Lao P.D.R.3.1%2.2%
🇱🇻 Latvia1.6%2.5%
🇱🇸 Lesotho1.6%2.1%
🇱🇷 Liberia4.2%3.7%
🇱🇾 Libya17.9%-18.4%
🇱🇹 Lithuania1.1%1.8%
🇱🇺 Luxembourg1.1%1.6%
🇲🇴 Macao SAR56.7%-22.4%
🇲🇬 Madagascar5.2%4.2%
🇲🇼 Malawi2.5%0.9%
🇲🇾 Malaysia*4.4%5.4%
🇲🇻 Maldives6.1%8.7%
🇲🇱 Mali5.3%2.5%
🇲🇹 Malta3.3%6.2%
🇲🇭 Marshall Islands3.2%1.5%
🇲🇷 Mauritania4.8%4.0%
🇲🇺 Mauritius5.4%6.1%
🇲🇽 Mexico*1.7%2.1%
🇫🇲 Micronesia2.9%-0.6%
🇲🇩 Moldova2.3%0.0%
🇲🇳 Mongolia5.0%2.5%
🇲🇪 Montenegro2.5%7.2%
🇲🇦 Morocco3.1%08%
🇲🇿 Mozambique4.9%3.7%
🇲🇲 Myanmar3.3%2.0%
🇳🇦 Namibia3.2%3.0%
🇳🇷 Nauru2.0%0.9%
🇳🇵 Nepal5.0%4.2%
🇳🇱 Netherlands*0.6%4.5%
🇳🇿 New Zealand1.9%2.3%
🇳🇮 Nicaragua3.0%4.0%
🇳🇪 Niger7.3%6.7%
🇳🇬 Nigeria*3.2%3.2%
🇳🇴 Norway2.6%3.6%
🇴🇲 Oman4.1%4.4%
🇵🇰 Pakistan*2.0%6.0%
🇵🇼 Palau12.3%-2.8%
🇵🇦 Panama4.0%7.5%
🇵🇬 Papua New Guinea5.1%3.8%
🇵🇾 Paraguay4.3%0.2%
🇵🇪 Peru2.6%2.7%
🇵🇭 Philippines*5.0%6.5%
🇵🇱 Poland*0.3%3.8%
🇵🇹 Portugal0.7%6.2%
🇵🇷 Puerto Rico0.4%4.8%
🇶🇦 Qatar2.4%3.4%
🇨🇬 Republic of Congo4.6%4.3%
🇷🇴 Romania3.1%4.8%
🇷🇺 Russia*0.3%-3.4%
🇷🇼 Rwanda6.7%6.0%
🇼🇸 Samoa4.0%-5.0%
🇸🇲 San Marino0.8%3.1%
🇸🇹 São Tomé and Príncipe2.6%1.4%
🇸🇦 Saudi Arabia*2.6%7.6%
🇸🇳 Senegal8.1%4.7%
🇷🇸 Serbia2.7%3.5%
🇸🇨 Seychelles5.2%10.9%
🇸🇱 Sierra Leone3.3%2.4%
🇸🇬 Singapore2.3%3.0%
🇸🇰 Slovak Republic1.5%1.8%
🇸🇮 Slovenia1.7%5.7%
🇸🇧 Solomon Islands2.6%-4.5%
🇸🇴 Somalia3.1%1.9%
🇿🇦 South Africa*1.2%2.1%
🇸🇸 South Sudan5.6%6.5%
🇪🇸 Spain*1.1%4.3%
🇱🇰 Sri Lanka-3.0%-8.7%
🇰🇳 St. Kitts and Nevis4.8%9.8%
🇱🇨 St. Lucia5.8%9.1%
🇻🇨 St. Vincent and the Grenadines6.0%5.0%
🇸🇩 Sudan2.6%-0.3%
🇸🇷 Suriname2.3%1.3%
🇸🇪 Sweden-0.1%2.6%
🇨🇭 Switzerland0.8%2.2%
🇹🇼 Taiwan2.8%3.3%
🇹🇯 Tajikistan4.0%5.5%
🇹🇿 Tanzania5.2%4.5%
🇹🇭 Thailand*3.7%2.8%
🇧🇸 The Bahamas4.1%8.0%
🇬🇲 The Gambia6.0%5.0%
🇹🇱 Timor-Leste4.2%3.3%
🇹🇬 Togo6.2%5.4%
🇹🇴 Tonga2.9%-2.0%
🇹🇹 Trinidad and Tobago3.5%4.0%
🇹🇳 Tunisia1.6%2.2%
🇹🇷 Turkey*3.0%5.0%
🇹🇲 Turkmenistan2.3%1.2%
🇹🇻 Tuvalu3.5%3.0%
🇺🇬 Uganda5.9%4.4%
🇺🇦 UkraineN/A-35.0%
🇦🇪 United Arab Emirates4.2%5.1%
🇬🇧 United Kingdom*-0.6%3.6%
🇺🇲 U.S.*1.4%1.6%
🇺🇾 Uruguay3.6%5.3%
🇺🇿 Uzbekistan4.7%5.2%
🇻🇺 Vanuatu3.1%1.7%
🇻🇪 Venezuela6.5%6.0%
🇻🇳 Vietnam6.2%7.0%
West Bank and Gaza3.5%4.0%
🇾🇪 Yemen3.3%2.0%
🇿🇲 Zambia4.0%2.9%
🇿🇼 Zimbabwe2.8%3.0%

*Reflect updated figures from the January 2023 IMF Update.

The U.S. is forecast to see 1.4% GDP growth in 2023, up from 1.0% seen in the last October projection.

Still, signs of economic weakness can be seen in the growing wave of tech layoffs, foreshadowed as a white-collar or ‘Patagonia-vest’ recession. Last year, 88,000 tech jobs were cut and this trend has continued into 2023. Major financial firms have also followed suit. Still, unemployment remains fairly steadfast, at 3.5% as of December 2022. Going forward, concerns remain around inflation and the path of interest rate hikes, though both show signs of slowing.

Across Europe, the average projected GDP growth rate is 0.7% for 2023, a sharp decline from the 2.1% forecast for last year.

Both Germany and Italy are forecast to see slight growth, at 0.1% and 0.6%, respectively. Growth forecasts were revised upwards since the IMF’s October release. However, an ongoing energy crisis exposes the manufacturing sector to vulnerabilities, with potential spillover effects to consumers and businesses, and overall Euro Area growth.

China remains an open question. In 2023, growth is predicted to rise 5.2%, higher than many large economies. While its real estate sector has shown signs of weakness, the recent opening on January 8th, following 1,016 days of zero-Covid policy, could boost demand and economic activity.

A Long Way to Go

The IMF has stated that 2023 will feel like a recession for much of the global economy. But whether it is headed for a recovery or a sharper decline remains unknown.

Today, two factors propping up the global economy are lower-than-expected energy prices and resilient private sector balance sheets. European natural gas prices have sunk to levels seen before the war in Ukraine. During the height of energy shocks, firms showed a notable ability to withstand astronomical energy prices squeezing their finances. They are also sitting on significant cash reserves.

On the other hand, inflation is far from over. To counter this effect, many central banks will have to use measures to rein in prices. This may in turn have a dampening effect on economic growth and financial markets, with unknown consequences.

As economic data continues to be released over the year, there may be a divergence between consumer sentiment and whether things are actually changing in the economy. Where the economy is heading in 2023 will be anyone’s guess.

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Markets in a Minute

Chart: The State of U.S. Retirement Assets in 2022

U.S. retirement assets have faced challenging conditions amid market headwinds—but over the last decade these assets have nearly doubled.

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U.S. Retirement Assets in 2022

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Chart: The State of U.S. Retirement Assets in 2022

Today, many people are questioning the effects of high inflation on their retirement assets.

This Markets in a Minute from New York Life Investments charts the state of U.S. retirement assets to show how Americans are building their retirement savings, and where these assets are being drawn from.

U.S. Retirement Assets: Where it Stands Today

As of 2022, there was over $33 trillion being held in U.S. retirement assets.

For perspective, that’s about 31% of all household financial assets in America and nearly double the amount seen a decade ago. In the table below, we show how this breaks down by retirement asset type, using data from the Investment Company Institute:

Type of Retirement Asset2022*2012200219921982
IRAs$11.7T$5.8T$2.5T$872B$67B
DC Plans$9.3T$5.2T$2.6T$1.1T$264B
State and Local Government DB Plans$5.1T$3.2T$2.1T$958B$260B
Private-Sector DB Plans$3.2T$2.7T$1.7T$1.1T$479B
Federal DB Plans$2.2T$1.3T$800B$411B$99B
Annuities$2.2T$1.7T$899B$473B$180B
Total $33.7T$19.9T$10.5T$5.0T$1.3T

*As of Q2 2022.

As seen above, individual retirement accounts (IRAs) hold the most retirement assets, at 34% of the total. Since 2012, they have doubled, jumping from $5.8 trillion to $11.7 trillion in 2022.

Today, about 37% of Americans hold an IRA.

With $9.3 trillion in assets, defined contribution (DC) plans are the second-greatest source of savings. These type of plans have the employee make contributions that are automatically deducted from their paycheck. Here, employers have the option to make contributions. Like IRAs, they have grown considerably in the last 10 years.

Defined benefit (DB) plans, meanwhile, have declined in usage, especially in the private sector. In 1982, private-sector DB plans made up almost 40% of U.S. retirement assets. In 2022, they accounted for under 10% of these assets.

Overall, retirement assets have declined in 2022 due to weak market performance—after a record year in 2021 driven by higher contributions, a strong market, and other factors.

U.S. Financial Security in 2022

With these factors at play, how are Americans feeling about their financial security, and how is this impacting their retirement outlook?

In one Ipsos survey, just 56% of Americans surveyed said they felt good about their overall level of financial security.

When it comes to their long-term outlook, chief among concerns is inflation. Over half surveyed said that it will likely have a big impact on their ability to save for retirement and meet other long-term financial goals. Rising interest rates and medical costs are other areas of concern, with about one-third saying they will have a large impact on achieving these outcomes.

Meanwhile, 59% of Americans said they feel confident they have enough savings to enjoy a comfortable retirement. Of these, Baby Boomers feel most confident at 70%, while Gen Z (48%) feels least confident.

The good news is that inflation looks to have hit its peak in the summer of 2022. Still, reaching a 2-3% target may take a longer period of time. With this in mind, looking to investment strategies that include floating-rate bonds and real estate, infrastructure, and value equities may help insulate retirement assets from market fluctations and inflation.

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