The economic recovery turns 8. How long will it last?

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The current economic expansion began in June 2009, eight years ago.

The recovery from the worst economic downturn since the Great Depression has led to the creation of millions of jobs and has helped fuel the bustling stock market. It has made many persistent investors wealthy and has served as a reminder to others remain invested when things go south.

As expansions go, this one is getting old. It’s the third-longest since the end of World War II. Lasting power is one thing. The extent of growth (GDP), or economic output that we’ve seen over these eight years, including consumer and business spending, ranks poorly from a historical perspective.

U.S. economic recessions and recoveries

“This expansion’s cumulative 17.5 percent growth in real GDP … ranks it only seventh of 11 and below the average increase of 25 percent,” says Sam Stovall, chief investment strategist at CFRA. Another common complaint has been a lack of income growth.

So, what’s next for the economy?

What’s the outlook for the U.S. economy in the near term? Our survey of top economists indicates the economy should continue growing through the first half of 2018. On average, they see economic growth of 2.41 percent over the next 12 months.

The survey also found that it is unlikely the U.S. economy will generate the stronger level of 3 percent (or better) GDP that President Donald Trump has suggested. At least not in the next year.

What about stocks? Will the rally continue?

The current stock market rally began just a few months before the start of the economic recovery. Like an economic crystal ball, the stock market began revving up a kind of signal that growth was on the way.

While there isn’t a perfect link between the economy and the stock market, one key is corporate profits, says Chuck Carlson, CEO of Horizon Investment Services.

“Corporate profits drive sustained moves in the market. Thus, the economy affects the market due to its effect on corporate profits.”

If anything, Carlson thinks the stock market is gaining some more substantial support. “Corporate profits, after a five-quarter downturn, have improved in the last two quarters; and as long as the economy can support higher profits (which I think it will), I see this market moving higher,” Carlson says.

8 years is old when talking about recoveries

At some point, the current stock market run will run out of gas, possibly coinciding with a recession. Veteran stock market watcher Hugh Johnson points out that this recovery is getting up there in age.

“The post-World War II average of 11 economic recoveries has been 58.4 months. At 96 months, this one has been quite long,” he says. Johnson, chairman and chief investment officer with Hugh Johnson Advisors, says recoveries in both the 1960s and 1990s were both longer.

The average of 11 market downturns since World War II works out to be a decline of 28 percent, according to Johnson. A bear market is a decline of at least 20 percent.

“The secret to having good longer-term investment performance is to preserve capital during longer-term market declines,” he says.

Unfortunately, that’s pretty difficult to do. For those who decide they want to put money into cash, certificates of deposit and savings accounts are good options.

Bottom line: Don’t try to time the market

For those of us investing for the long-term, such as for retirement that might be years away, the near-term swings in the market aren’t that important. That’s particularly the case for younger investors who are in the best position to weather the ups and downs and take advantage of years of compounding returns.

Unfortunately, some investors dumped stocks when the Dow was below 7,000 while others refused to invest after that, at all. What followed was a 14,000-point gain for the Dow, and many missed out on the gains.

The takeaway? Don’t try to time the market, says Greg McBride, CFA, Bankrate’s chief financial analyst.

“Instead, maintain a disciplined program of regular saving and proper diversification that will reward you across the economic ups and downs,” he says.

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Mark Hamrick

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