By Nicholas Colas of DataTrek Research
The first job I had after graduating business school in 1991 was covering the US auto industry at the old First Boston, now Credit Suisse. This was just after the 1990 recession, and the Big Three were all on the ropes. Light vehicle demand was off +30 percent from its 1980s highs. The Japanese makers were all gaining share. Chrysler was essentially bankrupt, as were some of its major suppliers. Investors had left auto stocks for dead.
Fast forward a year, and US automaker/supplier stocks were market leadership. Chrysler had doubled, albeit from $5/share to $10. Vehicle demand was starting to recover. Incremental margins on new vehicles – minivans and SUVS – were fantastic. Every quarter saw these companies beat estimates, often by a wide margin. The lesson here is that recessions, while painful, offer investors tremendous money-making opportunities.
In fact, every recession and market crisis since 1973 tells the same story about US stocks generally, not just grimy cyclical names:
1973 – 1974: S&P 500 loses 37 percent
1975 – 1976: Index gains 70 percent
1981: S&P loses only 5 percent despite deep, Fed-induced recession
1982 - 1983: Index gains 48 percent
1990: S&P loses only 3 percent despite Gulf War I oil shock
1991 – 1992: Index gains 40 percent
2000 – 2002: S&P loses 37 percent
2003 – 2004: Index gains 42 percent
2008: S&P loses 37 percent
2009 – 2010: Index gains 45 percent...