The markets had another historic week with market volatility leading the bearish charge. In the past two weeks we’ve seen the S&P 500 have daily moves of over 4% on nine of the last ten trading days. So let’s take a look back nine calendar days starting with Thursday, 12 March. The S&P 500 lost 9%, but then on Friday, 13 March the S&P 500 showed strength going into the weekend with an offsetting 9% gain. That strength combined with an oversold Bollinger Band Index (BBI) led to a recommendation to increase the C/equity allocation. On Monday, the S&P 500 sold off 12%, but since TSP/mutual funds get end of the day pricing, that allocation increase conveniently sidestepped those losses. Although Monday’s S&P 500 close was at 2386, it should be noted that it held just above the S&P 500 support level of 2351 from 24 December 2018. Encouraged by that support, the S&P 500 bounced higher on Tuesday with a 6% gain. The roller coaster ride continued on Wednesday when the S&P 500 gave back some of Tuesday’s gains with a loss of 5%. Then came Thursday, which was the only day in the last ten trading days with a return to normalcy, having an upward move of 0.5%. With Friday came hope that maybe the market’s bottom had come in. The S&P 500 climbed to a high of 2453 in the morning, up nearly 3% from Monday’s close and bullish feelings kicking in. However, coronavirus fears took over in the afternoon leading to a Friday sell off close of 2304. The S&P 500 also broke below that important 2351 support level. These fears intensified with global news having Italy allocating ventilator’s based on recovery probability. Both states (CA) and cities (NYC) are recommending remain at home policies. From a work perspective, most of us are government employees so we’re well aware that telework procedures have kicked in. From a personal perspective, we’ve had to adjust our daily routines, and gathering with friends and family has led to graduation, reunion, vacation and marriage modifications or cancellations. So where do we go from here? Living in Virginia Beach, we are exposed to rip tides during our summers. To get out of the rip tide, you don’t fight it by trying to overcome the rip, but rather swim parallel to the beach until out of the rip tide. Those justified coronavirus fears have built into a rip tide, and rather than fighting the bear rip, it’s time to move to the sidelines as reflected by our recommended reallocation. So how long and low will it go? Going back to my 6 March 2020 weekly update, let’s look back to the last major financial crisis bear market of 2007/8. “That bear market started on 9 October 2007 with the S&P 500 at 1565. Over the next 13 months it continued its descent until it bottomed out on 20 November 2008 with the S&P 500 at 752 for a 52 (yes 52)% loss. Fast forward to 19 February 2020 when the S&P 500 set a new record high of 3386. If history repeats itself, a 52% loss would bring the S&P 500 down to 1625, close to where it was in October 2007.” That would equate to about another 30% loss from where we closed on Friday. One other item to consider with bear markets is their propensity to return to a S&P 500 level of 1470. On 31 December 1999, the S&P 500 closed at 1469. On 31 December 2007, the S&P 500 closed at 1468. And on 10 January 2013, the S&P 500 closed at 1472. Over 13 years, the S&P 500 basically went no where due to the bear markets of 2000 and 2008. I mentioned above that a S&P 500 loss of 52% would bring us down to 1625. However, a return to a S&P 500 level of 1470, where we were over 20 years ago, would equate to a loss of 36% from where we closed on Friday. Or said another way, down 57% from where we were on 19 February 2020.
The markets had another historic week with market volatility leading the bearish charge. In the past two weeks we’ve seen the S&P 500 have daily moves of over 4% on nine of the last ten trading days. So let’s take a look back nine calendar days starting with Thursday, 12 March. The S&P 500 lost 9%, but then on Friday, 13 March the S&P 500 showed strength going into the weekend with an offsetting 9% gain. That strength combined with an oversold Bollinger Band Index (BBI) led to a recommendation to increase the C/equity allocation. On Monday, the S&P 500 sold off 12%, but since TSP/mutual funds get end of the day pricing, that allocation increase conveniently sidestepped those losses. Although Monday’s S&P 500 close was at 2386, it should be noted that it held just above the S&P 500 support level of 2351 from 24 December 2018. Encouraged by that support, the S&P 500 bounced higher on Tuesday with a 6% gain. The roller coaster ride continued on Wednesday when the S&P 500 gave back some of Tuesday’s gains with a loss of 5%. Then came Thursday, which was the only day in the last ten trading days with a return to normalcy, having an upward move of 0.5%. With Friday came hope that maybe the market’s bottom had come in. The S&P 500 climbed to a high of 2453 in the morning, up nearly 3% from Monday’s close and bullish feelings kicking in. However, coronavirus fears took over in the afternoon leading to a Friday sell off close of 2304. The S&P 500 also broke below that important 2351 support level. These fears intensified with global news having Italy allocating ventilator’s based on recovery probability. Both states (CA) and cities (NYC) are recommending remain at home policies. From a work perspective, most of us are government employees so we’re well aware that telework procedures have kicked in. From a personal perspective, we’ve had to adjust our daily routines, and gathering with friends and family has led to graduation, reunion, vacation and marriage modifications or cancellations. So where do we go from here? Living in Virginia Beach, we are exposed to rip tides during our summers. To get out of the rip tide, you don’t fight it by trying to overcome the rip, but rather swim parallel to the beach until out of the rip tide. Those justified coronavirus fears have built into a rip tide, and rather than fighting the bear rip, it’s time to move to the sidelines as reflected by our recommended reallocation. So how long and low will it go? Going back to my 6 March 2020 weekly update, let’s look back to the last major financial crisis bear market of 2007/8. “That bear market started on 9 October 2007 with the S&P 500 at 1565. Over the next 13 months it continued its descent until it bottomed out on 20 November 2008 with the S&P 500 at 752 for a 52 (yes 52)% loss. Fast forward to 19 February 2020 when the S&P 500 set a new record high of 3386. If history repeats itself, a 52% loss would bring the S&P 500 down to 1625, close to where it was in October 2007.” That would equate to about another 30% loss from where we closed on Friday. One other item to consider with bear markets is their propensity to return to a S&P 500 level of 1470. On 31 December 1999, the S&P 500 closed at 1469. On 31 December 2007, the S&P 500 closed at 1468. And on 10 January 2013, the S&P 500 closed at 1472. Over 13 years, the S&P 500 basically went no where due to the bear markets of 2000 and 2008. I mentioned above that a S&P 500 loss of 52% would bring us down to 1625. However, a return to a S&P 500 level of 1470, where we were over 20 years ago, would equate to a loss of 36% from where we closed on Friday. Or said another way, down 57% from where we were on 19 February 2020.