Broken hearts for bulls, optimists, and dip-buyers
Although their hearts have been broken today (unless they're still in denial), the news isn't all bad. Mostly bad, but not terminal. We came within an inch of a bear market today, but we didn't succumb. The market managed to stay above the bear market Maginot line of down 20%. We'll see how long that holds.
The rarefied air of today's market drop
Today's market drop has the ignominious distinction of ranking 7th worst out of 17,652 trading days since 1950. I tried to calculate the percentile but my calculator refused to cooperate. It offered this as the answer to my query: 3.963759909399773e-4. I don't know what that number means. but I think it's very bad.
The table below shows the 7 worst market drops since 1950. Note that 4 of them were from 2008. The worst of the worst was an outlier - Black Monday, 1987. Could we be headed for another Black Monday? I don't know, but today's market drop was black enough for me.
Here's the good news. According to history, there is more pain to come after these historic market drops, but 12 months hence there is an average GAIN of 19.5% in the market. Can we count on that happening 12 months from now? No, but it does give us a glimmer of hope.
The proximate causes of the market crash
I pay attention to news reports from Associated Press, Financial Times, and The Guardian for the most unbiased take on what's afoot with the pandemic and other news stories.
Outlets like CNBC, Fox, MSNBC, CNN, WSJ, and Barron's have great writers but I don't trust their editorial boards to give me truly impartial news.
We all choose our own sources of news, and I've given you mine, for what it's worth. And I trust the numbers from the CDC and the WHO more than what's coming from the Trump administration.
So, we have the Covid-19 pandemic weighing on the market. Everybody knows that. Now add the price war on crude oil between Russia and Saudi Arabia. Then factor in the rate on the 10 year Treasury bond and you have a perfect storm for a recession-linked bear market.
Oversold bounce
We can only hope that there will be a reaction to this selloff. History tells us to expect oversold bounces. We can't know when they will come, or how high they will go, but they're coming. So, the question you must ask yourself is this: will you treat these bounces as long-term dip-buying opportunities, or short-term opportunities to sell your weakest holdings?
What if the economy slips into recession and the market drops to 2000 on the S&P 500? What if the dip-buyers show up in force like they did on Christmas Eve 2018? Which of these scenarios seem more likely to play out in your opinion?
I choose the former. You may choose the latter. That's what makes a market.
Heavy in energy ( income stocks for semi-retirement) and hoping to go to part time in 4-5 years (73) . Tough decisions here. Thank you for you thoughts not connect to AP but read the Fin Times and Guardian.
Sold my hedges, sold my longs and sold my bonds in longer term portfolio, in 14 month made 16% , can’t complain. In trading account in 14 month made just 12%, too low usually is around 20 %. When I compare 60/40 and my accounts for the last 5 years , I am + 4% over 60/40 portfolio on annual basis. You ask me how much time I spend trading and reading , too much time . Daily it takes around 10 hours. Portfolio is 500K. Instead of doing something good for humanity and country, I sit at 6 screens all day long and feel like idiot . Government and FED made me. Do not trust anybody and anything is written anymore. Why I am doing this – ( just hate being screwed by FED and governments) . They got me with American Dream !!!!!!!!!!!!!!!!!!!!!
We are in recession now. John Law showed governments how to make money from nothing !!!!!!!!
Death and taxes.
7th worst of 17,652 trading days = 17652 -:-7=one in 2,522 trading days, or once every ten years we get a day like this