Welcome to uncharted territory. That sounds exciting if you are planning a summer vacation or wanting to go somewhere on your bucket list but is potentially unsettling when it comes to your life savings. Unemployment numbers have multiplied rapidly, and COVID-19 has shutdown vast sections of the world economy – and we do not yet know how deep or how long the effects of this virus will last. All we can do is look at other shocks to our economy and make educated guesses as to how this one might compare. Half of the fourteen (14) bear markets in the S&P 500 since 1929 have experienced peak losses of 30% or less. The peak loss (so far) in this downturn is 34%. It has been quick and sharp. It is worth noting that the previous two bear markets were considerably greater than the average.
The “tech wreck” in 2000-2002, as it has been dubbed, was a one-two punch of the excessive valuations on companies with no earnings (which gave birth to the “day trader”) and the attacks on 9/11 which propelled us into war on two fronts in Iraq and Afghanistan. The S&P 500 was down 49% at its lowest point during this time. The Financial Crisis of 2007-2009 saw the S&P 500 fall 59% from the top before the recovery began. While recent bear markets have been severe, the rebounds have also been much sharper, which makes attempting to time the market dangerous.
It is possible that we have already seen the maximum decline in equity markets. Most market technicians believe that we could easily retest the lows set a few weeks back, though as I am writing this, we are more than 25% above the S&P lows of March. Once businesses reopen and employees return to return to work, we look for steady improvement and hope for no relapses.
We will get through this. The crisis will end, and markets will eventually be at all-time highs again. Between now and then, we expect to see some bad economic data as the shutdown impact reveals itself in earnings reports, debt defaults, and consumer spending. This will cause volatility overall to remain elevated. One interesting note is that the amount of “insider” buying is higher than it was back in 2008-2009. This is a bullish sign. We were fortunate several weeks ago to be holding a great deal of cash in our portfolios and that has softened the blow — but we have begun to dollar-cost-average that money back into the market. If we do experience another pullback, we will accelerate the buying.
We do not want to come across as not valuing human life when we write our pieces of commentary. Money does not matter when life is at stake. While this virus has caused fear and panic it will be overcome. It is a mistake to bet against America and the determination that pulls us all together regardless of political, religious, or social views. My job is to be a realist. There is no one thing that we can blame this time around. Last time it was easy to point at the banks and excessive greed that caused our financial difficulties. This time around let us do some self-reflection and realize that the Creator intended us to live here for only so long. What can we all do to make a difference?
Feel free to reach out to us anytime if you need assistance from us.