Many of us recall the misery of the 2008-9 Great Recession market collapse and remember wishing that instead of the daily discouraging grind of negative returns, the markets would just hurry up and touch bottom and get it over with.
Be careful what you wish for. We’ve just experienced the fastest correction in market history—from peak to correction (down 20%) in just 20 days—and it doesn’t feel any less painful. After basically a flat week, while investors digested the implications of the rising Coronavirus epidemic, we experienced one of the wildest rides in stock market history.
Monday: Upon news of a dramatic drop in oil prices around the world, and all-time record low yields on U.S. Treasuries, the New York Stock Exchange experienced such rapid share price declines at the opening bell that it triggered a “circuit breaker” that stopped the fall at around 7%.
Tuesday: Just as we’d settled in for more bad news, the S&P 500 index unexpectedly popped up 4.9%.
Wednesday: The S&P 500 declined just under five percent on news that the World Health Organization had finally (and not unexpectedly, to anyone who was paying attention) declared Covid-19 a global pandemic.
Thursday: Another circuit-breaker day, with the S&P 500 finishing down 9.51%, its worst one-day performance since the Black Monday event on October 19, 1987.
Friday: Just as the markets seemed to be feeling a sense of despair, the S&P 500 roared up 9.3%, the biggest one-day jump since 2008.
Add it all up, and the market lost roughly 8% in a single week thereby ending the bull market that began way back in March of 2009. Sunday, the Fed announced that it was cutting the Fed Rate to 0% and Monday’s markets tripped the circuit breakers almost immediately and continued to bounce around before ending sharply down, suggesting that we’re in for another wild ride this week.
It is, of course, absurd to think that a diversified basket of (mostly) blue-chip stocks can be 7-10% more valuable one day than the next, which tells you quite clearly that emotions are driving these market movements. But all of us know that the many cancellations of events and gatherings, the reduced air travel, fewer restaurant goers and other impacts, big and small, in reaction to the pandemic are slowly chipping away at economic growth, earnings and profits. What we do not and cannot know is whether the current prices in the stock market reflect the temporarily-reduced value of American companies—or not.
There is certainly reason to wonder about the big rally in stock prices on Friday. The nation was clearly relieved that the federal government had declared a state of emergency. Behind the scenes, the Federal Reserve was also boosting stock prices by making massive cash injections—an estimated $1.5 trillion of repurchase agreements with the U.S. Treasury—into the banking system.
It would be nice if we could tell you what all this means for short-term future market returns, or what new surprises the coming week will bring. Truth is, nobody can. These are the kind of market conditions that test our patience and wear us down, but always, in the past, we would look back on big market swings from the perspective of new highs, and wonder what all the fuss was about. Our hope is that someday soon we will all be doing exactly that.
Please reach out to us if you have questions or just want to talk about your situation.
Best regards,
The Meritas Team