THE S&P 500 REBOUNDED 25% IN THREE WEEKS – BUT THE WORSE MAY NOT BE OVER
Good Morning Readers!
Wishing you all a belated Happy Easter; Happy Passover; and a WONDERFUL WEEK!
Has the stock market bottomed? Covid-19 has caused over 100,000 global deaths and tens of millions are unemployed in the U.S. The U.S. lost more than 16 million jobs over the past three weeks which is ~10% of our overall workforce. The number filing for unemployment benefits last week totaled more than 6 million, tying a record set just the previous week. But somehow with all the above bad news, the S&P 500 increased 25% since March 24, 2020.
COVID-19
Dr. Fauci, Director of the National Institute of Allergy and Infectious Diseases, said the U.S. expected death toll looks more like 60,000 versus the earlier estimates of up to 250,000 Americans. The pace of new coronavirus cases around the world is also slowing. In the U.S., daily virus increases appear to have peaked around 33,000 while the hospitalization rate in New York — the state with the most confirmed cases — has fallen.
MAJOR UNKNOWNS IMPACTING THE STOCK MARKETS
- When will the U.S. start to see a steady decline in COVID-19 cases?
- How long before a viable treatment is approved and released?
- How long before a vaccine is made ready?
- How do we SAFELY return Americans to work and how quickly can that happen?
- How willing are businesses and people to reengage even after the all clear is sounded?
- Are you willing to book a cruise or flight this year? Will people attend ballgames, concerts etc.?
THE S&P 500 RALLIED ~25% SINCE A LOW REACHED ON MARCH 23, 2020 – {SEE BELOW CHART}
Even with the above major concerns and unanswered questions, the S&P 500 and other major indices went up ~19% to 25%. It is impossible to assume the recent 25% recovery in the S&P 500 is here to stay. This recent gain may be a momentary/false uptrend before the market plunges to March 23, 2020, low levels or worse.
VOLATILITY PAINTS A LESS OPTIMISTIC PICTURE – {SEE BELOW CHART}
Prior to the COVID-19 economic collapse, stock volatility was averaging ~ 15. As institutions and people started selling stocks in fear, that drove the volatility up to ~85. Volatility is the range of price change security experiences over a given period of time. If the price stays relatively stable, the security has low volatility. A highly volatile security, hits new stock prices highs and lows QUICKLY, moves ERRATICALLY, and has RAPID increases and dramatic falls. Which is what we have experienced over the past few weeks.
As you can see from the above CBOE SPX Volatility Index Chart, volatility rose from a normal range of ~15 (1-100 SCALE) in late February to a high of ~87 on March 19 and back down to ~42 on March 9, 2020. We are still almost three times higher than normal volatility, and may still see massive and erratic highs and lows. A high volatility normally signals a bearish (stocks going down) market.
THE MARKET’S RECOVERY APPEARS TO HAVE BEEN FUELED BY SEVERAL FACTORS:
- An improving outlook on the coronavirus outbreak,
- Massive U. S. monetary and fiscal stimulus,
- President Trump’s discussion of reopening parts of the economy as soon as May 2020,
- Potential stabilization and increases in oil prices.
The major averages are still well below the record highs set in February. All indexes could fall back under pressure as more data shows the virus’ economic damage is greater than feared or iF the virus outlook worsens.
ECONOMIC RECOVERY TIMING IS UNCERTAIN
I believe the economic/stock recovery is very dependent/correlated with WHEN the virus’ health impact recedes.
“You don’t make the timeline; the virus makes the timeline,” Dr. Fauci
POSSIBLE OUTCOMES
- V-chart shape recovery (which we are seeing in the above first chart), with the virus contained, a lower death rate than expected, and the economy returning to trend by the end of the third quarter.
- Double bottom chart pattern, where we return to the previous or lower market prices.
- EKG chart shape” (like the blips of an electrocardiogram chart) comeback
CONCLUSION
As I mentioned in earlier blogs, I did NOT exit the market. The primary reason – I would not know when it was safe to reenter the market. For those looking to buy/sell I urge you do your homework and speak to a Fiduciary Financial Advisor. We are facing the horrible health and economic reality of COVID-19. I do not know what course the virus, our government or the economy will take.
More importantly follow the CDC guidelines so you and those you love remain healthy! Let’s keep safe distancing, wear mask and gloves. ALL non-essential workers stay in your homes to protect self and others. Wash your hands like you just touched the grossest thing in your imagination, using HOT water and soap for at least 20 seconds. I want to see some wrinkles on those hands!
Stay safe and well.
{CONTINUED FROM PREVIOUS CORONAVIRUS BLOGS}
HOW TO MANAGE CORONAVIRUS HEALTH AND INVESTMENT RISK – MARCH 2, 2020
WHEN THE U. S. HAS A COUGH THE REST OF THE WORLD CATCHES A COLD – WHAT HAPPENS WHEN CHINA HAS A CORONAVIRUS? – MARCH 9, 2020
PANICKING WILL NOT ERADICATE THE CORONAVIRUS PROBLEMS – MARCH 16, 2020
https://wealthbuildingpowers.com/2020/03/16/panicking-will-not-eradicate-the-coronavirus-problems/
WHEN FEAR RUNS HIGH, THE NEED FOR COURAGE MUST RUN HIGHER! – MARCH 23, 2020
THERE IS ONE THING WE CAN ALL DO TO HELP SOME OF OUR TRUE HEROES – MARCH 30, 2020
A CALIBRATED LIFTING OF THE CORONAVIRUS EMERGENCY SHUTDOWN – APRIL 6, 2020 100
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ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger, with a NC State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I had a desire for making a difference as a speaker and writer, to help others. I was blessed to be coached and mentored by strong women and men in both my family and professional life. It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate and happy to share my personal finance and investment lessons learned with you.
However, I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or fiduciary financial advisors.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.
