On January 1, 2020, the S&P 500 started the year at 3,227.57. As of March 23rd, 2020, the S&P 500 was down 35.40%. It was the fastest bear market in history. Subsequently, the S&P 500 is up more than 43% closing on June 8th at 3,232.39 a gain of 0.15% for the year. Through our emails and communications with our clients, we have tried to convey the message that the market does not have to trade on the headlines of the day, nor will the market wait for things to look better before stocks start rising again. The market only cares about two things, are things getting better or worse.
We have leaned on market history to put context around the current environment. While it may seem like things are bad if you watch the news every night, there are some comparisons being drawn to the past that may help put things in perspective. A global pandemic kills more than 100,000 Americans, and there are mass protests around the country for racial equality – the year was 1968 and it was the H3N2 flu and the protests were in response to the assassination of Martin Luther King, Jr. In 1968, Robert Kennedy was assassinated and it was the deadliest year in the Vietnam War. The S&P 500 was up nearly 11% in 1968. Tom Lee of Fundstrat recently wrote, “1968 was the year that “shattered America” and many tumultuous events and violence took place in that year. And despite that, the equity markets managed to perform solidly.”
While there are parallels to be drawn from 2020 vs 1968, there have also been unprecedented things that have happened this year. It took just 22 days for the S&P 500 to fall over 30%, making it the fastest bear market ever. Oil prices went negative. Corporate bonds fell over 20% before the Federal Reserve stepped in. We saw unemployment numbers we have not seen since the Great Depression. Things that “never happen” seem to keep happening. These examples, as well as the similarities between 1968 and 2020 should be a reminder to investors that the stock market is not looking at what is happening today. It is anticipating what earnings will be for companies in the future. The market has been moving up because investors believe things are looking better in the future than was previously thought.
I am sure we will continue to see both parallels to the past and new unprecedented things happening in the future. One thing that seems to be constant is human behavior. The data shows there were large moves to cash this year at the worst times as shown by the chart below:
Investors continue to make emotional decisions. Whether it is chasing the newest trend or thinking you will move to cash until things “calm down.” I do not think anyone would agree that things have calmed down, yet the market is looking past that.
Making investing decisions based on short term thinking may work in the short term, you may get lucky. However, being a successful long-term investor has nothing to do with the short term. To reach your long-term goals you must have a disciplined process in place. The market is going to trade in a very wide range from time to time. There will be bear markets, there will times when it goes down 30% like this year. Over the long term, allocating money globally to stocks has always been rewarded.
To end on a positive note, I will share what one of our research inputs, Jeff Saut of Saut Strategy had to say on Monday:
“As often stated in these missives I think the stock market is looking past the bad economic and earnings reports coming over the next few months anticipating a strong economic and earnings rebound in the third and fourth quarters of this year. Meanwhile, the individual investor is not just cautious, but remains scared to death. Ladies and gentlemen, that is NOT how bull markets end.
To repeat ad nauseam, secular bull markets tend to last 15 – 20 years and are not stopped by 30% to 40% declines. To reiterate, the 1949 – 1966 secular bull market had numerous 30%+ declines, but it did not stop the bull market. The 1982 – 2000 bull market was interrupted by the 1987 Crash, yet the bull market went on for another 13 years.”
This is just one input to our research consensus, but it is positive. We will continue to monitor all of research inputs and allocate our portfolios accordingly.
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