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Burgess COMMENTARY Peter Burgess | ||
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The Reasons Why The Markets Will Go Much, Much Lower From Here
Summary
That was the stock market correction? Have we already set the new lows as the stock markets march on with a new bull market? Wow, that was quick. Quick down, quick up? Yes, it was the most violent correction in stock market history. 
TSX decline The above is a chart showing the decline of Canadian stocks. It's a very similar chart for US stocks (IVV) (VTI) and stock markets around the Globe. Here's a six month chart for the S&P 500, from Seeking Alpha ... 
Again that correction only needed a couple of weeks. The total correction was 36% according to the Seeking Alpha chart. That was followed by a 19% 'recovery'. Mr. Market Ignores COVID-19 and the Recession? That's a lot of pending bad news to blow off. Of course the COVID-19 crisis is more than troubling. It is and it will take a tragic toll on human life and suffering. It will affect so many families by the time this is all said and done. In fact it is World War III. This is how many politicians and healthcare workers frame the battle. We have a common enemy. Every country in the world is fighting against that common enemy. I knew this threat early. I was one of the first to suggest why and how investors might prepare their portfolio for the coronavirus outbreak. I penned this on February 1; weeks before the markets began the correction. It is a small group that took this seriously, early in the outbreak. How to prepare your portfolio for the coronavirus outbreak. In that article you'll see the suggestion of some assets that have performed quite well. We'll get back to the COVID-19 effects and when it might peak (in cases and deaths) and when we might gain control over the pandemic. But first a few observations on the history of stock market corrections and recoveries. Stock Market Corrections Weed Out The Weak And The Pretenders - And That's Healthy. Many will suggest we did not yet do enough weeding of that garden of excess. This stock market correction is at the end of the longest bull market run for US stocks - in history. David Rosenberg in The Financial Post outlined the degree to which we typically remove the excess - the amount of steam released after a bull market run. From an April 2 post... 
Here's the link to that article. But I'll give you the low down (pun intended). In any event, if picking bottoms is your thing, I have news for you: In the markets, as in life, the higher you are, the harder the fall. It's also never about historical percent changes cycle by cycle, but the reversal from the prior market condition. As we know the recent melt up was comparable to the situation previous to the dot-com bubble and collapse. Of the past 10 recession-era bear markets, two were nearly 30% retracements, four were between 50% and 80%, and another four were complete round trips Mr. Rosenberg went on to add that if this current downturn is an average cycle, the low on the S&P 500 would be 1,135. The median performance would peg the low at 1,515. Let's have a look at a 10-year chart. 
From April 7 close here's how much more we have to fall ...
Market bottoms and recessions. From macrotrends. Here's US stocks, the grey shaded areas are the recessions. 
While a bottom can occur early in a recession, they do not fall outside of the recession. There was more of that occurrence in early in the last century. In the last several recessions the market bottom has hit late in the recession or midpoint. The bottom is usually very late in the recession. One point of clarification, we do see the bottom of the dot-com bust occur after the recession had been called off. Of course that was a very rare event when US stocks fell for three consecutive years, from 2000-2002. And of course I am assuming there is a global recession and that we are already in the early stages. If you disagree please fire away in the comment section. 
There are estimates that US unemployment will hit the range of 20% or more, eclipsing the Great Depression. Of course we've had to manufacture a recession. We've had to shut down entire sectors to combat and contain COVID-19. But many feel that because the pain and recession is self-inflicted, we might see a quick and robust recovery. 
I've read many accounts suggesting a recover in the third quarter of 2020. But who knows? The pandemic will determine that perhaps. And our ongoing response to the pandemic. As we know, the markets are forward looking. We see many countries flattening the COVID curve. We see countries such as China getting back to work. Other countries were not as severe in their lock downs and they were able to flatten and plank their curves. There's more than one way to get COVID under control. That's what the market makers are observing and projecting. They see COVID-19 being contained around the Globe in many countries. Will that be enough to create the first market bottom previous to the recession? Will peak cases and peak deaths have any effect? I always thought the terrible human tragedy would have the greatest effect on the stock markets. That may not be the case. According to most experts we are fast approaching the peak cases in the US and most notably in New York State and New York City. That is a sad situation that I have been watching daily. We all hope the efforts have paid off to limit the human suffering. Here's the US states from worldometer. 
With suggestions of a peak within the week. 
It will come down to beds available and ventilators. If the most challenging test occurs in New York, there will be many lessons and learning(s) that can and will be applied to the next US hot spot. There will be much equipment available as well. We might see a form of travelling COVID M*A*S*H units. There is hope. But there is a war to go through first. I think the images from New York will continue to be a wakeup call. Those images might intensify their shock effect in the coming days and weeks. The US is not in good shape (nor is my own Ontario) and many do not still take this seriously enough. 
Many say the bottom is in. Of course, not one knows how this will play out. But if you're looking for investors and writers who have called the bottom, that will not be in short supply. On Twitter Douglas Kass, President of Seabreeze Partners Management declared ... 
And Danielle DiMartino Booth, the CEO and Chief Strategist of Quill Intelligence gives the nod of approval. 
And from Bill Ackman ... 
From a Market Insider article ... The Pershing Square Capital Management leader said he's removed all hedges that he had in place to offset the coronavirus pandemic, which were short positions in the credit market, and bought stocks. Who's right? Market history or the 'smart money'. As always you'll find opinions on both sides. Perhaps this is another example of why we might run into difficulties when we attempt to time the markets. Stocks got cheaper by 20% and then 30% and more - that's a decent correction. That was a good time to add to your stocks. Lower prices may come, they may not. Usually, almost always, we are best to stick with our simple plan. If you have that simple plan you might just keep on investing. Keep on keepin' on. They say you can't fight the Fed. They rode in on their tanks. They'll say it was like bringing a tank to a knife fight. And they're ready to do more. Whatever it takes to ward off a Depression or lasting recession. The question then might be, what kind of crisis are they creating with the endless printing of monies? Arthur Salzer of Northland Wealth Management offers that stocks ARE going higher from here. At least over the intermediate term. Arthur offers that government 'stimuli' has been 7-8x that of the response in 2008-2009. Fiat money. Got gold? Got that new gold - crypto? Be safe. Stay home. Keep your distance to save lives. We'll see you in the comment section. What do you think? Is the bottom in? Have you been investing, or you're holding off? Author's note: Thanks for reading. Please always know and invest within your risk tolerance level. Always know all tax implications and consequences. If you liked this article, please hit that 'Like' button. Hit 'Follow' to receive notices of future articles. ------------------------------------------------------ Disclosure: I am/we are long BNS, TD, RY, AAPL, BCE, TU, ENB, TRP, CVS, WBA, MSFT, MMM, CL, JNJ, QCOM, MDT, BRK.B, WMT, TXN, PEP, LOW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Like this article Follow Dale Roberts and get email alerts Checking in with our favorite permabear. Stock market corrections are a natural and even healthy event. They are needed and expected. From 2015, please have a read of ...
Dale Roberts ... Long-term horizon, portfolio strategy, bonds, dividend investing (9,926 followers)
| Apr. 8, 2020 3:15 PM ET|523 comments | Includes: IVV, VTI The text being discussed is available at | https://seekingalpha.com/article/4336720-reasons-why-markets-will-go-much-much-lower-from and |