HERE WE ARE… NOW WHAT?

• How bad is it?
• a current look-back and is now the time to buy back into the markets?

S & P 500 Index

• Peak to trough, the S&P 500 is off -35 % The largest decline in over a decade.
• Now exists a ton of “trapped” owners in the market…i.e. people sitting with loss positions
• Most large equity declines (greater than 25%) are indicative of larger economic trouble

The decline we’ve seen has been truly astounding as the market has gone from all-time highs to a stealth bear market in record time, both in terms of speed (time) and intensity (depth). The market is signaling major economic problems as a result of the corona virus. We believe the market is forward looking and is currently pricing in at the very least a recession, and if things continue to get worse a severe recession or possibly a depression. The market has effectively given back all the gains achieved in the last few years.

Russell 2000 Index

• The average stock/decline as seen in the Russell 2000 is far worse peak to trough currently at -43.65%
• Seen through the Russell the market has effectively wiped out more than three years of gains.
• The speed and size of the decline is unprecedented

The Russell 2000 is more representative of how a portfolio of equal weighted stocks has performed and you can see that the performance is even worse. This means that the average stock has almost lost half of its value from the peak. If you look at the shaded rectangles in both Russell & S+P charts they show how far back buyers would have had to have bought to currently be sitting with a gain. More accurately it shows that anyone who has adhered to a ‘buy & hold’ strategy over the last few years sits at a loss.

Nasdaq Composite Index

• Large distribution/selling are huge red flags as they are signs of massive institutional selling
• The Nasdaq composite had 3 of the largest volume selling weeks in history
• The selling intensified as the volume increased

While it’s possible the lows may be in or that we are getting close – the amount of selling volume was a signal that there was a lot of stock for sale and very little appetite for buying. The market will need to demonstrate a reversal in this behavior before a reliable bottom can be trusted. Therefore, the larger and swifter the break in the market the more time that will be necessary for prices to recover.

Large distributions in the markets must be respected. In addition, the buy and hold strategies now illustrate the concept of what we call trapped or overhead supply where many of these holders are now potential sellers into subsequent rallies as they will look to sell or pair losses that were once gains. This ongoing selling will add to a slower market recovery.

The longer-term ramifications of the virus impact continue to unfold along with the incoming data related to the jobless, consumer confidence, corporate earnings and GDP that have currently placed us in uncharted waters making it difficult to keep up with the developing complexities and we don’t believe that now is the time to jump all in the markets.

While there may be specific securities or industries that continue to perform well, now is not the time to take on excess risk. After an injury of this magnitude, we will look for the markets to nurse back to health and showing signs of a recovery before putting most of our capital back to work.

Please contact us anytime with questions or to discuss matters important to you.