Linda S. Parenti, CFA
Chief Investment Strategist
Market volatility remains high but has come down significantly from the extreme levels seen last month. Fiscal and monetary programs designed to assist individuals and companies during this engineered cessation of our economy continue to roll out and have helped calm market nerves and restore financial system imbalances. Using the S&P 500 as a measure, as of yesterday’s close, stock prices have rallied +25% off their lows and are up over +8% in total return month-to-date. Perhaps it can be argued that investors have been somewhat encouraged by recent news on COVID-19. An overall falling rate of growth in death counts in the U.S. and worldwide, news on medical developments, and word that discussions are starting on how best to reopen our cities. That is the good news.
In my March Insights, I explained that market falloffs and rallies happen even more quickly now, due to instant news flow and automated trading programs, so timing them is highly risky. I also offered that studies have shown the best days for the stock market typically happen shortly after the worst days. This would certainly be true looking at the past two months. It took just 22 calendar days from S&P 500 record high on February 19 to drop 27% and officially start a new bear market. A short 11 days later, the index hit its most recent low and started back up again. From that point, it took only 16 days more to rally 23% off that low and officially start a new bull market.
Unfortunately, it is unlikely that equities are headed straight up from here. As of yesterday’s close, the S&P 500 is still trading -17% below its mid-February record high and even including dividends, -13% year-to-date. Uncertainty rules the day, and markets have been desperate for direction. Rightfully so, the health aspect relating to the coronavirus has been taking the lead. Earlier this week however, investor focus was drawn back to the impact of this hard stop in our country’s economic activity. Even though dramatic reductions were expected, as March data points continue to show record breaking declines, it is sobering to know that April’s numbers will be even worse. While this recent rebound has been encouraging, I believe the markets could easily be subject to additional weakness in the months ahead.
Nonetheless, I continue to have confidence in the long-term outlook for the economy and the markets. Equities are forward looking and historically reflect turns in economic direction months in advance. It will take time for the economy to heal, but less time for the stock market. Given the speed at which the markets move these days, our strong recommendation is to stay invested and actively manage holdings within asset classes. If underinvested, it is helpful to remember that market timing is impossible. Rather than try to call the low, consider gradually investing back up to your normal equity asset allocation with the help of your advisor.
RISKS AND IMPORTANT CONSIDERATIONS
Views and opinions expressed here are for informational and educational purposes only and may change at any time based on market or other conditions or may not come to pass. This material is not a solicitation to buy or sell securities and should not be considered specific legal, investment, or tax advice. The information provided does not consider the objectives, financial situation, or needs of any specific individual. All investments carry a degree of risk and there is no certainty that an investment will provide positive performance over any stated period. Equity investments are subject to company specific and market risks. Equities may decline in response to adverse company news, industry developments, or economic data. Fixed income securities are subject to market, credit, and interest rate risks. As interest rates rise, bond prices may fall. Past performance is no guarantee of future results.