Here’s Where We Are in the Coronavirus Crash
It’s been an insane month for the stock market. That much goes without saying.
But while measures to contain the COVID-19 pandemic continue to escalate, the big question that investors should be asking is how much crazier things could get for your portfolio before they stabilize.
Today, we’ll turn to the data to try and figure that out.
Context matters for markets.
Last year, for instance, the big S&P 500 Index rallied more than 28.8% higher on a price basis. But that number totally misses the fact that the S&P spent the fourth quarter of 2018 in freefall, selling off more than 19.6% between October 1 and Christmas Eve.
With that context in mind, 2019’s banner year wasn’t quite as ebullient as it seemed.
Likewise, the context of this market crash says a lot about what could be coming next…
For starters, this has been a historic selloff by any measure.
Have a look at how it compared to every other 24%+ drawdown in the S&P 500 (and its predecessors) since 1928:
The bad news is that 2020 stands out alongside 1929 and 1987 as a crash from record highs. All three years had similar price behavior, even if 2020’s drop has been the fastest market crash in history.
The good news is that we’re closing in on the range where those other, similar selloffs found stability, leading to several months of sideways price action.
Yes, that’s what passes for good news these days…
Looking at the S&P 500 over the last ten years, it’s clear that we officially went beyond “correction territory” at the start of this week:
The long-term price trend that’s been in play since the wake of the 2008 financial crisis got materially violated with Monday’s selloff.
That opens the door to more pressure on stocks in the immediate-term, confirming the chart of other market drops as well.
Like most storm clouds, there’s a silver lining here.
Once things start tracking sideways, some of the worst-hit stocks could finally present buying opportunities after seeing their valuations pulverized in recent weeks.
For now, one of the most important takeaways from prior crash events is not to try and pick the bottom – that’s typically only possible in hindsight.
Wait for buyers to step in again and begin trending prices higher before jumping into beaten-down names. A late entry is better than a false start in this market.
Jonas Elmerraji, CMT