No matter how many times we have gone through downturns, corrections and bear markets, the $64,000 question is always "Where is the bottom?" Even after a drop of more than 26% on the S&P 500, which threw us into a bear market more quickly than at any time in US stock market history, people are concerned that things may get worse before they get better.
It is a valid question that also points to a valid fear. This is especially true as the 2007-2008 financial crisis and downturn is still present in the minds of our clients. Many people remember what it was like looking at their statements and hearing the dire financial news... Wondering if they were going to still be able to retire on time or educate their kids and grandkids.
"This too shall pass" (Persian: این نیز بگذرد) is a Persian adage that reflects on the temporary nature, or ephemerality, of the human condition. Just like the numerous viral outbreaks that we have been through previously, we believe that this too shall pass and that eventually capitalism and free markets will allow the markets and the economy to rebound in grand fashion... as they have after every crisis in American history that was supposed to be the end of the world.
While nobody knows the answer to the question at the top of the page, it is probably safe to say after a 26% drop in the markets, we are probably closer to the bottom than the top. After President Trump's declaration of a National Emergency, the markets rebounded strongly to end the week. Now, with the passage of an emergency financial aid bill by the House this weekend and the Fed cutting interest rates to 0% as well as instituting additional Quantitative Easing measures, our hope is that the markets begin to find some footing and support.
History has taught us that the bottoming after a stock market decline usually is a process not an event. We believe that this is likely to be true again this time around. The market will continue to move up and down in dramatic fashion over the next few weeks along with the daily headlines trumpeted by the media. The chart below, courtesy of Morningstar, shows that historically some of the biggest up days in the history of the stock market over the last 20 years are clustered around some of the worst days.
We will continue to closely monitor the events and news flow going on around the viral outbreak, the economy and the markets for the benefit of our clients. We want to continue to keep you informed and encouraged as we all work through this process. I am confident that we will come out the other side together.