{"id":5685,"date":"2020-04-29T08:00:13","date_gmt":"2020-04-29T00:00:13","guid":{"rendered":"https:\/\/www.infinitysolutions.com\/?p=5685"},"modified":"2020-04-28T15:43:19","modified_gmt":"2020-04-28T07:43:19","slug":"has-the-market-reached-the-bottom","status":"publish","type":"post","link":"https:\/\/www.infinitysolutions.com\/blog\/has-the-market-reached-the-bottom\/","title":{"rendered":"The Million Dollar Coronavirus Question: Has The Market Reached The Bottom?"},"content":{"rendered":"<p>Well if anyone could accurately predict the markets they would be a very rich person indeed. The truth is that no-one in the world knows for sure what markets will do but we can look at certain patterns and indicators to surmise what may potentially happen.<\/p>\n<p>And to be honest, it\u2019s probably not the news that you are hoping for if you have stock market investments. We\u2019re sorry not to be able to bring you the news you want to hear BUT read to the end to find out why you should still stay invested.<\/p>\n<p><strong>2020 \u2013 the story of the market so far<\/strong><\/p>\n<p>Markets kicked off 2020 on fine form with record highs after a decade-long bull market. The S&amp;P 500, for instance, hit its highest level ever of 3,386 on 19<sup>th<\/sup> February 2020. At that point, for those of us living outside China, the prospect of lockdown seemed preposterous, we could kiss and hug our friends, go to the theatre or the cinema and eat and drink wherever we pleased. Those were the days!<\/p>\n<p>From 20<sup>th<\/sup> February 2020 investors started to wake up to the fact that the virus was spreading and the prospect of lockdown, worldwide layoffs, failing businesses, disrupted supply chains, tanking oil prices and a major global recession loomed rapidly into view. As the devastating effects of Covid-19 became clearer, stock prices tumbled by almost a third in just over a month with the S&amp;P 500 hitting a year-to-date low of 2,237 on 23<sup>rd<\/sup> March.<\/p>\n<p>Since then they have climbed back up to their current level of 2,819. So that\u2019s positive right? Share prices are on their way up\u2026.<\/p>\n<p><strong>2020 \u2013 what will stock markets do next?<\/strong><\/p>\n<p>If only it were that simple. The percentage drop from the high to where we are now is 17% which is not great however it does compare favourably to the two previous recessionary drops this century:<\/p>\n<p>Between 2000 and 2002 the dot.com bubble triggered a 49% peak to trough fall in value of the S&amp;P 500<\/p>\n<p>Between 2007 and 2009 the financial crisis triggered a 57% peak to trough fall in the value of the S&amp;P 500<\/p>\n<p>That sounds good too\u2026?<\/p>\n<p>Sadly most economists don\u2019t agree. The World Trade Organisation has predicted a <a href=\"https:\/\/www.bbc.com\/news\/business-52211919\">drop in global trade worse than in the 2008 crisis<\/a> while <a href=\"https:\/\/www.nytimes.com\/2020\/04\/14\/us\/politics\/coronavirus-economy-recession-depression.html\">the IMF is predicting a worse recession that since the Great Depression<\/a> of the 1920s and 30s.<\/p>\n<p>So if the early signs are good, why are the media warning of a worse recession than either of these two events?<\/p>\n<p><strong>Why are share prices likely to fall further?<\/strong><\/p>\n<p>The fact is that the fallout of this pandemic is likely to be a recession of greater magnitude and broader in scope than either of those we have lived through to date this century.<\/p>\n<p>Many industries from travel and tourism to restaurants, retail, sport and entertainment have juddered to a near halt and millions have lost their jobs all over the globe, in the developed countries of Europe and North America as well as in emerging markets.<\/p>\n<p>So while stock prices have risen since their low on 23<sup>rd<\/sup> March it is probable that they are going to zig zag their way even lower still before a sustained rally. This is an entirely normal way for stocks to behave.<\/p>\n<p>Returning to the dot.com bubble and the financial crisis, the best comparisons that we have, it\u2019s interesting \u2013 if a little depressing &#8211; to look at the time frame over which the peak to trough falls occurred:<\/p>\n<p>Dot.com bubble \u2013 the 49% peak to trough fall in value of the S&amp;P 500 occurred over 929 days<\/p>\n<p>Financial crisis \u2013 the peak to trough fall in value of the S&amp;P 500 occurred over 517 days<\/p>\n<p>As more and more data is released over the coming months concerning business activity, employment, company earnings etc, and none of it is looking like it will be positive for a while, the likelihood is that we are going to see multiple ups and downs before the markets reach the bottom with none of the ups anywhere near the high of the 19<sup>th<\/sup> February.<\/p>\n<p>And while that\u2019s hard to take, we think it\u2019s best for investors to have a realistic picture of what is likely to happen rather than hold out false hopes that the worst is already behind us.<\/p>\n<p>As uber-investor and billionaire, Howard Marks, so succinctly put it \u2018We\u2019re only down 15% from the all-time high of Feb. 19\u2026it seems to be the world is more than 15% screwed up.\u2019<\/p>\n<p>The truth is that economies cannot be turned around overnight and the natural cycles which characterise the stock market are going to take time given the severity of the current crisis. We are still very early in this particularly painful cycle which will feature multiple rounds of drops and rebounds. What is reassuring is that history tells us that markets have always been cyclical and always recovered eventually.<\/p>\n<p><strong>Should I bail now? <\/strong><\/p>\n<p>The short answer is no, and the reason is that you\u2019ll be entering into the dangerous game of trying to time the markets, which rarely ends well. Even in a recession, a buy-and-hold strategy is likely to work better for the majority of investors as long as it is diversified and the investment timeframe remains reasonable. Bailing now means selling low as well as missing that critical bounceback which takes us back to the initial high before this peak to bottom plunge began.<\/p>\n<p>Our MD Trevor Keidan explains this reasoning in more detail in this <a href=\"https:\/\/www.infinitysolutions.com\/blog\/financial-planning\/so-you-think-you-can-time-the-markets\/\">post<\/a>.<\/p>\n<p><strong>But I guess it\u2019s wise to hold off investing in the current investment landscape?<\/strong><\/p>\n<p>We\u2019ll leave this one to the aforementioned Howard Marks as we\u2019re unlikely to be able to put it better:<\/p>\n<p style=\"padding-left: 40px;\"><em>\u2018So it\u2019s my view that waiting for the bottom is folly. What, then, should be the investor\u2019s criteria? The answer\u2019s simple: if something\u2019s cheap \u2014 based on the relationship between price and intrinsic value \u2014 you should buy, and if it cheapens further, you should buy more.\u2019<\/em><\/p>\n<p><strong>And here\u2019s the good news!<\/strong><\/p>\n<p>A picture speaks a thousand words so here is what happened to the S&amp;P500 in the ten years following its financial crisis low in 2009:<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-5687\" src=\"https:\/\/www.infinitysolutions.com\/wp-content\/uploads\/20200429.jpg\" alt=\"\" width=\"628\" height=\"529\" srcset=\"https:\/\/www.infinitysolutions.com\/wp-content\/uploads\/20200429.jpg 628w, https:\/\/www.infinitysolutions.com\/wp-content\/uploads\/20200429-300x253.jpg 300w\" sizes=\"auto, (max-width: 628px) 100vw, 628px\" \/><\/p>\n<p>While the outlook for investors right now is far from ideal, the key takeaway here is be patient. Just as night follows day, a rally will follow this decline. Keep your eye on the long game and keep the faith!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Well if anyone could accurately predict the markets they would be a very rich person indeed. The truth is that no-one in the world knows for sure what markets will do but we can look at certain patterns and indicators to surmise what may potentially happen. And to be honest, it\u2019s probably not the news&hellip;<\/p>\n","protected":false},"author":2,"featured_media":5686,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false},"categories":[153,45],"tags":[],"class_list":["post-5685","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","category-investment-management","category-153","category-45","description-off"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Coronavirus Question: Has The Market Reached The Bottom?<\/title>\n<meta name=\"description\" content=\"No-one in the world knows for sure what market will do but we can look at certain patterns and indicators to surmise what may potentially happen.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" 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