As you know, the Dow exited its bear market on March 26th, when it closed up by more than 20% from its lowest close. Currently, the Dow is now up 26.04% from their lowest close.
The S&P finally followed suit and exited their bear market yesterday when it surged past 2,684.88, before finally closing at 2,749.98, up 22.91% from their lowest close.
The Nasdaq is not that far behind. They are now up 17.93% from their lowest close. But a close at or above 8,232.80 sees them exiting their bear market. And that's only another 1.75% away.
We also saw crude oil soar by more than 10% ahead of today's emergency OPEC meeting where Saudi Arabia and Russia are expected to cut production.
But the biggest piece of good news came from the fight against the coronavirus. It appears all of the social distancing measures are indeed bending the curve, and that we'll dodge the worst case scenario.
Gone are the predictions for up to 240,000 deaths. Now predictions are for 60,000 by early August. Still a tragedy. But I wouldn't be surprised to see that number lowered again as time goes by.
While we'll likely all be stuck inside for the rest of the month, planning is underway for how to reopen the economy. Will it be a partial open with certain regions going first and others to follow, or will it all open at once?
Nobody yet knows what that will look like. But it's a conversation we could've only dreamed about a few short weeks ago. Now we're planning for its actual implementation in the very near future.
In the meantime, we still have to take care of our businesses and employees that are temporarily out of work.
To date, there's been $100 billion in small business loans already processed, which is estimated to have saved as many as 9.5 million jobs.
But that money is going fast. And the original $350 billion is expected to be tapped out within the next few days/weeks.
Because of this, congress is expected to pass an additional $250 billion in small business loans this week to further help business and workers stay afloat for the next month or two until the economy reopens.
And once it does, this lifeline will allow everybody to hit the ground running.
But remember, the market is forward looking. It doesn't wait for the all clear sign before moving up. It does so ahead of time.
So now's the time to start building your portfolio of dream stocks for the inevitable bull market to follow.
-- Kevin Matras, Profit from the Pros, 4/9/20
Sunday, April 12, 2020
Saturday, April 04, 2020
how long with this bear market last?
Generally speaking, there are three types of bear markets: structural, cyclical, and event-driven. Every bear market has a unique set of drivers, of course, but throughout history most of them fall into one of these three categories:
It makes sense why structural bear markets tend to be the most severe – they result from systemic issues in the financial system and capital markets, which can take a lot of time and pain (in the form of bankruptcies, restructurings, etc.) to fix.
Cyclical bear markets are next, and generally require the business cycle to run its course, for interest rates to fall, maybe some monetary and fiscal stimulus to stoke demand. Cyclical bear markets are bad, but have tended to resolve themselves with time and adequate policy responses.
Last on the list are ‘event-driven’ bear markets, which throughout history have tended to be shorter, less severe on the downside and take less time needed to recover than ‘structural’ or ‘cyclical’ bear markets. This makes sense: in many cases, the global/US economy is in decent or good shape before an exogenous event takes place, meaning that it does not take quite as long for the economy to recover once the impact of the ‘event’ fades.
In the current environment, for example, millions of jobs were lost very early in the crisis as businesses made fast and severe adjustments to cope with shutdowns and restrictions. But once these restrictions are removed, the lost jobs could return fairly quickly – and arguably more quickly than if this were a structural or cyclical recession, in my view.
To be fair, I think it’s important to acknowledge that there has not been an event-driven bear market in history that was triggered by a virus/disease outbreak. I think it’s important to hold out the possibility that this event-driven bear could morph into a structural bear if the crisis is not contained by, say, summer. In the meantime, however, I think the sheer size and speed of fiscal ($2 trillion legislation) and monetary (virtually infinite liquidity) stimulus should help keep this bear market in the event-driven category for a few months.
In China, new Covid-19 cases fell sharply by mid-March, with the first day of no new cases reported on March 19 – about two and a half months into the outbreak. As I write this, more than 98% of China’s major industrial companies have resumed operations, with 90% of workers back on the job. Shopping malls in Wuhan, where Covid-19 first appeared, opened for business this week after being shut completely for two months.3 If, in the West, we manage to contain the crisis and the ‘curves all flatten’ by summer, we could tiptoe back to normal economic activity perhaps by late summer. Time will tell.
There is no way to know when this bear market will bottom. But what I can tell you, from a long reading of history, is that the bear market will likely come to end as the news remains bad and even gets worse. In other words, I think on day 1 of the new bull market, we will still be reading about job losses, lost profits, and bleak statistics about the pandemic. That’s what makes it impossible to predict.
Mitch on the Markets, 4/2/20
- Structural – These are bear markets like the 2008-2009 downturn, which are driven by financial bubbles, too much leverage, credit market dislocations, and other structural imbalances.
- Cyclical – Cyclical bear markets happen more as a function of the business cycle, when growth leads to inflation, interest rates go up too fast, the yield curve flattens or inverts, loan activity declines, demand wanes, etc.
- Event-Driven – These bear markets are triggered by an exogenous event, like an energy crisis, political instability, war, or in the case of the current bear market, a global pandemic.
Looking back at data going back to the 1800’s, here’s what we know about the relative magnitude and duration of each category of bear market:
It makes sense why structural bear markets tend to be the most severe – they result from systemic issues in the financial system and capital markets, which can take a lot of time and pain (in the form of bankruptcies, restructurings, etc.) to fix.
Cyclical bear markets are next, and generally require the business cycle to run its course, for interest rates to fall, maybe some monetary and fiscal stimulus to stoke demand. Cyclical bear markets are bad, but have tended to resolve themselves with time and adequate policy responses.
Last on the list are ‘event-driven’ bear markets, which throughout history have tended to be shorter, less severe on the downside and take less time needed to recover than ‘structural’ or ‘cyclical’ bear markets. This makes sense: in many cases, the global/US economy is in decent or good shape before an exogenous event takes place, meaning that it does not take quite as long for the economy to recover once the impact of the ‘event’ fades.
In the current environment, for example, millions of jobs were lost very early in the crisis as businesses made fast and severe adjustments to cope with shutdowns and restrictions. But once these restrictions are removed, the lost jobs could return fairly quickly – and arguably more quickly than if this were a structural or cyclical recession, in my view.
To be fair, I think it’s important to acknowledge that there has not been an event-driven bear market in history that was triggered by a virus/disease outbreak. I think it’s important to hold out the possibility that this event-driven bear could morph into a structural bear if the crisis is not contained by, say, summer. In the meantime, however, I think the sheer size and speed of fiscal ($2 trillion legislation) and monetary (virtually infinite liquidity) stimulus should help keep this bear market in the event-driven category for a few months.
In China, new Covid-19 cases fell sharply by mid-March, with the first day of no new cases reported on March 19 – about two and a half months into the outbreak. As I write this, more than 98% of China’s major industrial companies have resumed operations, with 90% of workers back on the job. Shopping malls in Wuhan, where Covid-19 first appeared, opened for business this week after being shut completely for two months.3 If, in the West, we manage to contain the crisis and the ‘curves all flatten’ by summer, we could tiptoe back to normal economic activity perhaps by late summer. Time will tell.
There is no way to know when this bear market will bottom. But what I can tell you, from a long reading of history, is that the bear market will likely come to end as the news remains bad and even gets worse. In other words, I think on day 1 of the new bull market, we will still be reading about job losses, lost profits, and bleak statistics about the pandemic. That’s what makes it impossible to predict.
Mitch on the Markets, 4/2/20