Update: 3/17 - Relatively positive day today especially as we lost the futures gains from overnight and it was a near certainty that we would be going 'red' shortly after open. We then whipsawed from red to green and back multiple times before we finally found our footing into another lengthy group press conference led by President Trump, VP Pence, et al.
The markets tried to sell off multiple times with the S&P up over 4% and we did find dips but quickly rallied back up over the 4% level, finally closing up a flat 6%. While it was a day of volatility, the swings were much less and there was decidedly less volatility than we've seen over the past week and half. A very good sign.
Desensitization of events is something I have tracked over my three decades trading and investing these markets and it's in play here as well. We Americans need to acclimate to situations and that plays out with blood in the streets first, followed by a lessening effect over the days and weeks to come.
This is a very fluid situation with the virus certain to increase its spread in coming days but hard decisions are being made to limit that spread, hopefully with impact on the available hospital beds being a point of concern for most all. Mix in virtual shut down of in-person commerce and there's little way in my estimation we can avoid a recession. But have we already become expectant of that as well? I think that is well priced in and further drops will be a function of new news and a resurface of fears as it occurs.
To me ... it doesn't much matter. Much of the damage is already done with the markets down 30% at one point. How much more of a decline is there to come? 10%? 15%? 20%? I stand by my estimate that regardless of the this acute event, not systemic nor chronic, when combined with the federal stimulus being injected, once we clear of this event, we're going to have extremely fertile soil from which to rally. That's not to say these markets won't decline another 20% but these must be seen as buy-side catalysts in my mind.
I've spoken with multiple people who have asked about strategy in addition to sending out a newsletter of sorts to those I have helped with planning and investing topics, related to the events and the impact on their investments.
A strategy I still recommend is to determine how much cash you have to invest and put X% of it to work at each X% decline regardless of the catalysts for the drop. I understand the need to time the market and I don't say you MUST trade into the market in the middle of a steep decline but you need to understand when your next threshold has been struck and money is due to go into the market.
For example, if you have $100,000 (round numbers here) to invest: If you commit to adding 10% of this cash at every 5% of the market, you would be fully invested once the market has dropped 50%, a drop that is significant and not often seen. This in all likelihood finds 60%-70% of your available cash invested into a bear market which averages in the neighborhood of 33% declines, give or take.
You can time the market but you can't time the market well. Experts can't do it and neither can you. Doesn't mean you can't get lucky but luck is best served at the roulette table. But we've all done it. Commit to the strategy of averaging into declines and history has shown that you will be paid handsomely.
Where to form here? No idea, but what I do know is that we need to get beyond this Friday as it is quadruple witching on Friday and we need that volatility out of the market. Though more will follow.
Path of least resistance seems to be lower still as rallies may be sold but this mid-week rally into the close was very much needed to restore confidence and I'm hoping to see less than four digit declines going forward and some parity returning. Then, perhaps, we can return to a market moving on individual successes, failures and data emerging from the economy and virus.
At some point, most of the fear will be out of the market and full recession will be priced in. When? No idea and that is why I recommend a steady purchase plan into declines. Coming out of it we will have very fertile soil to serve as a foundation of returned value.
Good luck all and stay safe.
Tj |
