Market Update: March 27, 2020
A Look On the Bright Side
Throughout this market meltdown, we are committed to keeping you updated. That is why for the foreseeable future we will be producing a market commentary weekly. Additionally, we know there are an incredible amount of negative headlines right now so we will be doing our very best to share some positive headlines!
Here Is Some Good News!
Coronavirus vaccine test opens with 1st doses
Trump: Ford, GM, Tesla given OK to produce ventilators
Coronavirus: South Korea reports lowest number of new cases in four weeks
Relief, Rallies, and Bottoms
Relief
The big news this week is that, as of the timing of this writing, the Senate has passed an economic stimulus “relief” bill. The house is largely expected to pass the bill quickly with President Trump signing the bill into law as soon as it reaches his desk. The passage of this bipartisan bill is encouraging for several reasons.
Bipartisanship is something Americans need right now and quite frankly we have not witnessed in recent decades, let alone years.
This will likely not be the last relief bill that will be needed to pull our economy through this pandemic. But now that we have this bill approved, congress has a template to build on for further relief.
Unlike the Economic Stimulus bills of the 08-09 crash, this bill heavily addresses individuals, families, and small businesses. The bill puts cash directly in the hands of lower and middle-income Americans to the tune of up to $1,200 per adult and $500 per child. As more information emerges about this bill we will attempt to communicate those details.
Rallies
On the back of news about the relief bill being passed markets have responded with a healthy rally. The S&P 500 hit a bottom (for now) of 2237 on March 23rd. This is almost 34% off of its all time high from February 19th. From March 23rd until close of markets on 03/26 the S&P 500 is up 17.17%! The charts below show the crash and the most recent rally.
This rally although encouraging and nice to see does not necessarily mean we are done with market pain. Very often during bear markets, there are several rallies and subsequent downturns. The problem of course with exiting the market is you miss those rallies and are likely to miss the final rally as well. For example, during the 08-09 crisis there were several massive rallies and pull backs before the market finally gave way to an uptrend that lasted 11 years! In the chart below I highlight some of the most prominent rallies from 08-09.
Bottoms
To be fair, I am not saying that this is a false rally and I’m not saying this is the bottom. The truth is we cannot know definitively either way. There is a saying in the investing world for trying to time the bottom. The saying goes “Don't try to catch a falling knife”. The symbolism is clear if you try to time the market you are more likely to do harm than good. This goes for bailing out of the market until “the coast is clear” or for trying to time the bottom to get the best possible value on putting cash to work.
So here is what we do know. We know that the economic headlines for at least six months are likely going to include bad news, surprises, and occasionally hope. Those are the ingredients for a bumpy market recipe. We also know that despite the economic headwinds markets tend to be very forward-looking, which means that markets will begin to show optimism far before the economic data indicates. The market does this on both the upside and downside. For example, this crash started on February 19th but the Coronavirus cases in the U.S. only began to spike in the two weeks. The market anticipated this would get bad before it actually got bad. The chart below illustrates how the market reacted in anticipation of increased U.S cases (due to both the spread and the fact that we were behind on testing).
Despite the fact that we cannot time the bottom, we have seen some positive indicators in the past week or so. For example, Smaller Cap stocks which tend to be riskier have been outperforming.
Without getting into the technicals, markets are behaving more rationally with a slowdown of indiscriminate selling and the bond market has started to “normalize”. These indicators give us some optimism that even if there is more market pain to come it will likely not be as drastic, steep, and fast as the first few weeks of this crash were.
So what are we doing? My colleague Justin Meyer wrote an article detailing some of the things that we at FSG are doing (What Is My Doing During A Bear Market?). Even though you cannot perfectly time the bottom putting excess cash to work during bear markets is actually a great idea for long term investors. In that regard, we are looking for value and will take advantage of opportunities where we find them while keeping risk in check.
To our friends and clients, I pray you are staying healthy and being kind to one another. As always if you have questions or concerns please do not hesitate to reach out.
View related content at the links below:
https://fsgmichigan.com/blog/what-is-my-advisor-doing-during-a-bear-market
https://fsgmichigan.com/blog/the-dos-and-donts-during-market-volatility
https://fsgmichigan.com/blog/the-anatomy-of-a-stock-market-crash
https://fsgmichigan.com/blog/coronavirus-chaos-thank-you-for-your-confidence
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Written by Brice Carter