When is a Bull market not a Bull market?
Last week the market took off, it really ran, for all of three days. Even today, at the writing of this article the market is up nicely. So, when is a Bull market not a Bull market? First, strictly speaking, a Bull market is one with a 20% gain, where a Bear market is one with a 20% loss. So again, when is a Bull market not a Bull market? When both the Bull and the Bear happen in the same month.
In late February through most of March, the S&P 500 lost approximately 35% before turning around and bouncing nearly 20% at the end of the month. Wonderful comparisons were made to historical market dates going back to the 1930s. The only problem with these comparisons to great dates in history is that decade was the Great Depression.
So, what do we believe is really happening? First, there is a global pandemic. Throughout the country, social distancing has cost our nation millions of jobs with more to come. The goal that our government is trying to reach by shutting society down is to quickly stop the spread of the virus. Therefore, to quickly reopen the economy limiting the damage. Is this a risk? We believe so, but one that should be taken to solve one problem at a time. First, stop the virus, then rebuild the economy… fast. It is the best of the worst choices.
Throughout March the stock market has been trying to price the potential economic damage. This caused the selloff. It fed on itself, causing damage to all markets. Before Thursday, March 26th there was very little real economic data. Sellers were trying to get in front of the bad news. In the meantime, the US Fed pushed billions of dollars into the bond markets to stabilize them. The first round of data was not as bad as expected. The stock markets grew quickly off of its lows. So, now some people in the news wants to claim the worst of this stock market is behind us?
No way…(but of course we don’t have a crystal ball!)
We do not believe that the worst of this market is behind us. The recent gains in stocks have given us a great opportunity to rebalance our clients’ portfolios. We are closely watching market data, as we have described within our rules-based methods. This gives us guidance as to market sentiment, economic health, and overall historical stock market value. From this guidance, we believe we can make high-quality decisions in the future.
We appreciate your trust.
Take care,
Your Sound Financial advisors
In this week’s recap: Markets swing upward as the Federal Reserve and Congress move stimulus forward.
THE WEEK ON WALL STREET
An open-ended commitment by the Federal Reserve to support American businesses and capital markets along with the passage of a $2 trillion aid package improved investor sentiment and drove a strong rally in stock prices.
The Dow Jones Industrial Average jumped 12.84%, while the Standard & Poor 500 gained 10.26%. The Nasdaq Composite index rose 9.05% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, increased by 12.03%.1-3
Stocks Rebound
A stunning string of Federal Reserve initiatives and the passage of a $2 trillion aid bill buoyed stocks this week, with the Dow Jones Industrial Average jumping by over 11% on Tuesday, its best day since 1933. Stocks continued to strengthen the following day, registering their first back-to-back gains since February.4,5
Despite a record 3.28 million jobless claims, stocks added to their gains for a third straight day. Stocks gave back some gains on the final day of trading to end an otherwise welcomed week of positive price action.6
A Shift in the Conversation
The conversation around the domestic spread of the coronavirus has been centered on “flattening the curve,” with closures of local businesses and schools, a shift to working from home, and appeals for social distancing.
Hitting the pause button on the U.S. economy, however, has had its consequences, including massive job losses, sharp declines in business revenues, and disarray in the capital markets. This week the conversation shifted to include how to restart the economy amid a pandemic that may not have yet peaked.
Final Thought
On a strictly definitional basis, the three-day surge in stock indices this week signaled a new bull market (when stocks rise 20% after having fallen 20% or more). But it’s hard for even professional investors to make sense of a market that enters a bear market and a bull market in the same month. This volatility certainly speaks to the deep health and economic uncertainties that exist.
It’s not clear what the rally this past week means for the market going forward. Absent such clarity, markets are likely to remain volatile in the near term, requiring investors to be patient with their long-term investments and wait as calmly as possible for time to answer the big questions overhanging today’s market.
THE WEEK AHEAD: KEY ECONOMIC DATA
Tuesday: Consumer Confidence.
Wednesday: Automated Data Processing (ADP) Employment Report. Purchasing Managers Index (PMI): Manufacturing Index. Institute for Supply Management (ISM) Manufacturing Index.
Thursday: Jobless Claims for Unemployment. Factory Orders.
Friday: Employment Situation Report. Purchasing Managers Index (PMI): Services Index.
Source: Econoday, March 27, 2020
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.
THE WEEK AHEAD: COMPANIES REPORTING EARNINGS
Tuesday: Conagra Brands (CAG), McCormick & Co. (MKC)
Thursday: Walgreens Boots (WBA), Chewy (CHWY)
Friday: Constellation Brands (STZ)
Source: Zacks, March 27, 2020
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Any investment should be consistent with your objectives, time frame and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.
Sound Financial Strategies may be reached at 601.856.3825 or info@soundfsg.com
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