“We moved conservative, and now stocks are growing again. Are we missing the rally?” We are hearing a version of this question occasionally these days. “Am I missing it?” This is completely understandable. From March 20th to April 14th the S&P 500 grew by approximately 23%. Some of those days, the market roared up like a freight train. Couple this with news that the US economy will “re-open soon,” “it’s different this time,” and calls for a “V” shaped recovery; and all of us feel the fear of missing out on big returns.
However, before we proclaim victory and “it’s all clear,” let’s look at a few facts. The US economy has 20 million new unemployed workers in four weeks, earnings reports that are unspeakably bad, and economists forecasting the worst global economy since the Great Depression.
But remind yourself that all of our news outlets love to tell us the best stories this side of Utopia or the worst news this side of Hades, because anything in between (like the facts) is too boring to sell. So as Joe Friday once said, “Just the facts, ma’am.”
In the last two great Bear markets, we have seen rallies, called Bear market rallies, just like this one. In March 2000 –2002 the S&P 500 lost 29%, then regained 17% before losing another 39%. In the 2008- 2009 Financial Crisis, the S&P 500 lost 18%, regained 11%, then lost 53%. In each of these loss/gain/loss scenarios the stock market “retraced 50%” before taking another leg down. If you look closely, the markets may do this multiple times in a Bear market. This chart is a picture of this description:
Therefore, we believe the answer to the question; “is this rally real or a head fake?” is fake. Currently, the S&P 500 has lost 34%, then gained 23%, but we don’t know what will happen next. The technical analysis of the stock markets point to more losses, making this a bad time to chase stock returns. The good news is that these same facts point to a time in the future when stocks will be very favorable again. Therefore, we will continue to watch the data to make these determinations. Remember, this is why we are now overweighted in bonds!
We appreciate the trust that you show us in allowing us to manage your investments.