Words like, unprecedented, never before, not in your wildest dreams, unbelievable all have probably crossed your mind over the last few weeks. If they haven’t crossed your mind then I’m guessing you’ve at least heard them on the TV or from your wealth manager.
While the cause of this bear market may in fact be unprecedented the results of it actually are not. We’ve had market crashes before, in fact we’ve had deeper drops that the current one we’re in.
This is where the behavioral side of investing starts to come in. So many times, we get caught up in the reasons for market turmoil and that bleeds into our ability to analyze the effects of said carnage. It’s what causes oversold conditions and volatility extremes. Emotions from the cause, in this case COVID-19 create unrealistic doom and gloom in our minds. I’m not saying this virus isn’t real or shouldn’t be taken seriously. What I am saying is this virus has an effect that the market attempts to measure by price and future expectations.
You see the stock market is forward-looking, which means it moves first. It dropped before the virus had fully impacted us. It began rallying before positive signs of slowing the curve surfaced. Two weeks ago, the Dow had it best week in 80 years, right smack in the middle of peak virus growth.
To take it one step further, this is why you’re seeing the market rallying amid report after report of terrible economic news. Expectations for when the economy will begin to re-open are already pricing into the markets and the economic reports are by nature looking at the past. In short, these reports are telling us what we already know, things are bad right now.
Since March 23rd, the stock market has been on fire. The S&P 500 is up more than 25% in just 17 trading sessions. Keep in mind that comes after a very ugly spill from a worldwide pandemic. The market continues to be volatile and I don’t see that changing anytime soon with the uncertainty that’s lurking around every corner. This is where I remind you that sharp pullbacks during any recovery phase happen often and usually pretty fast and can create unwanted emotions in your decisions.
The simple equation to the short term of your investments performance and the market will be this:
Once things are better, the economy will reopen, probably in stages. As businesses get back into full swing, employment and the economy will grow. If you fundamentally believe in this and you have a long-term investing perspective and thus have eliminated your investing fear and you have the mindset to ride this out.
I hope this helps…..Happy Investing Folks!