The first three months of 2020 were down-right brutal. Stocks recorded their worst showing in history as the Dow Jones Industrial Average closed out of today’s session down 411 points, capping off its Y-T-D losing streak at around 22%. Good Riddance, Q1!
So, what’s ahead of us now? Are there any reasons to be positive?
Some investors are taking comfort in the recent comeback in stocks as the S&P 500, despite its miserable showing so far this year, has bounced back off of the bottom it saw on March 23rd when the index put in a print below 2,200. Rallies are good signs, right? Well, yes perhaps, but there are many questions that lie ahead, and, at Capstone, our experience is telling us that we are only ending a market topping process and just now entering into the bottoming process.
In fact, in my March 20th message to clients and readers of this post, I mentioned that one of the main traits of a bottoming process is experiencing “oversold” market conditions where sellers of stocks reach extreme exhaustion, the markets somehow find silver linings in the headlines, a 3,000 – 4,000 point rally in the Dow Jones Industrial Average could follow, and the potential for this most sought after bottoming process could be evolving. That sounds a bit familiar doesn’t it? Okay, yeah it does, but I wasn’t trying to predict anything on March 20th, I was merely speaking from a little bit of experience.
At Capstone Wealth Management Group, I, alongside our investment advisors, have over 50 years of combined experience in managing money, and we have seen some tough times and some very difficult market environments along the way – from the dot.com bubble bursting in 1999 & 2,000, the market collapse after 9/11, anthrax scares, terrorist attacks, “fiscal cliffs”, government shutdowns, to a financial crisis and global “risk culture failure” in ’08-’09 of epic proportions. Yes we have, indeed, seen very bad times.
Have we seen it all, though? We may have thought we did – until now. The Coronavirus pandemic is putting manners on the world in a way that most of us have never seen before. Global markets are being taken out at the knees, we’re all on lockdown, and investors need to observe caution and be sure that the investments in their portfolios are made responsibly and are built to last over the long-term.
So, what does the recent relief in stocks tell us about what where we’re going from here? Well, as always, it’s difficult to forecast accurately, but we can rely on our experience from bear markets of the past and look to some technical indicators that may shed some light as to what can come next.
In most bear markets, after stocks decline 35% or more from prior peaks, rallies of 20% or more (because of oversold conditions) are common and, too often, they entice investors back to the table as the “bottom callers” come running back into equities believing that the bear is heading back into woods.
These are bear market rallies. They create temporary pain relief like a Tylenol would do to a major migraine headache. Realistically, bear markets don’t show up and then go away one month later, and, as I also mentioned in a prior message, there are too many analysts and investors that are trying to call "a bottom" right now. In my view, we’re just not there yet.
So, what will it take? In addition to the “process” that stocks must go through at this point, we will, “flatten the curve”, eventually hear from scientists that have a breakthrough drug or vaccine, the frozen tundra we call the US Economy will begin to thaw out, market dislocation will dissipate, and then, perhaps, we find that elusive “bottom” in stocks.
Clients and investors are getting bombarded with information about the markets every day now, and trying to sort it all out is like defying gravity. Should you sell? Is it time to buy? Is the bottom in?
I say, don’t react recklessly, realize the difference between confidence and accuracy, and understand that quick, fleeting, momentary responses to ever-changing headlines might FEEL like it’s the right thing to do, but it rarely is.
Don’t let the overload of information distort your short-term expectations, either. We all should realize that the market is going to remain turbulent, and none of us are going to like the volatility in the coming months. If you’ve taken appropriate steps to reduce risk and “weather-proof” your portfolio, as we have, then you can and will get through this downturn.
If, as non-Capstone clients, readers of this post feel as though they have unknowingly given up control of their investments and they’re not sure how to trust them, give us a call. We can take an “X-ray” of your investments, assess your risk, and give you fresh perspective.
We are here for you if you have questions or concerns. Please call us anytime at (570) 587-7800 or 888-587-7526.
(The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.)