What a day. What a week. What a month.
The S&P 500 index lost another 5.2% yesterday – which is somewhat of a relief because it was down over 9% at one point during the day. The index did manage to close above Tuesday’s low. That is potentially bullish. It’s somewhat funny to say, but the NASDAQ 100 (QQQ) was the best performing of the major indexes, losing just over 3%. As daily swings of 3-5% become the norm, we become somewhat numb to them. Not fun.
Although there was no direct catalyst for the sell-off Wednesday, stocks erased nearly all of Tuesday’s big gains. Energy was massacred by another big drop in crude oil prices following reports that Saudi Arabia has said it will continue record-high oil production “over the coming months,” accelerating its price war with Russia. Oil prices have been sinking as the Covid-19 pandemic reduced demand, and Russia in recent weeks failed to agree to an OPEC proposal to reduce oil production. West Texas Intermediate crude on Wednesday plunged a shocking 22.7% to trade at $21 per barrel. It is now at the lowest level since 2002! The good news? Lower prices at the pump….if you can leave your home.
Stocks found no relief from reports that the White House is urging lawmakers for $1 trillion in stimulus to cushion American workers and the economy from the impact of the coronavirus. Lawmakers were warned by the Trump administration that US unemployment could jump to 20% if no financial aid measures were passed. Lawmakers aren’t wasting time getting stimulus to the markets and taxpayers, which is good news.
With the dual plight of an oil production glut and the coronavirus global pandemic, global commerce has been left at a virtual standstill and has undercut the lives and financial balance of millions of people who work in the service industry.
I have to say, this is one of the worst times I’ve ever seen in my 30-years in the markets. Why? Because of the velocity and relentlessness of the selling. The Financial Crisis offered many opportunities to buy in, even while the market was falling overall. Today’s market has been a one-way street. Fifteen of the last twenty days have been down. Back-to-back up days haven’t taken place since early February. Household names that would typically be the last ones to drop, have taken big hits.
On a positive note, all of the ingredients are in place for a large, multi-day oversold bounce. I’m not trying to paint a bright picture. Indeed, it is likely to take months of choppy or declining stock prices to work through the problems that have been exposed by the action over the past three weeks. But we will find a bottom, and I’m thinking sooner than later. All of the government stimulus and federal reserve easing being put out there is going to find its way into stocks one way or another.
Even during the worst bear markets, there are always very strong “rip your face off” rallies that work off the oversold conditions. We are on the cusp of one of those rallies.
At the lows yesterday, conditions felt worse than they did on the ugly markets of Christmas Eve, 2018. They also felt a lot like they did in October 2008. Back then, the S&P lost about 1/3 of its value in just three weeks. Then it exploded almost 20% higher in one week. In this market, we could get that in a day!
Of course, that wasn’t the end of the decline. That didn’t happen until March 2009. And, there were multiple swift declines and violent oversold rallies in the months in between. So, we’re probably in for something similar for the next several months.
But, for the next few days, the market is set up for a “rip your face off” oversold bounce. We could see a 20-25% “pop” from here – which would boost the S&P 500 index back up towards 2,900 or so. A really wild move could get the index back up to 3150.
The bigger point is that yesterday certainly felt like a seller’s exhaustion. That sets us up for an oversold bounce, which could be quite substantial. Following that, we’re in for a several month-long period of big declines and big bounces as we carve out a bottom. Be ready for it if you’re overexposed to the markets and have been “losing sleep”. Use the bounces to reduce exposure or hedge your portfolios. We can help.
Whatever you do, this is not a market to chase big moves in stocks or funds. You will surely get another chance to get into this market if the rally is sustainable, so if you miss an initial move, be patient. You’ll get many chances to buy back in. You don’t need to be the first one into the foxhole.
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