Given the continued bloodbath we are seeing in stocks, this commentary serves as follow up to the Special Report we released just over a week ago, on February 29. In that report, we noted that an explosive rally was likely early the week of March 2, due to short covering and extreme oversold conditions. We also suggested that the real test would come after the rally faded and investors were left with the opportunity to resume selling. Unfortunately, the selling resumed, and by Friday, the February 28 lows were being tested. Throughout the weekend news of additional coronavirus cases worldwide consumed media. To make matters worse, on Sunday we learned that Russia and Saudi Arabia had begun an all-out energy price war. These two factors caused the S&P 500 futures market to lock limit down (trading halted at down 5%). Oil futures were down more than 20%, after an already huge drop over the preceding two weeks. It was clear last night that today would be a very ugly day for world equity markets.
As bond yields dropped to historic lows at the market open, U.S. indexes promptly fell 7% and trading was halted. This extremely rare safety mechanism was last implemented in 2011. Despite giving investors time for cooler heads to prevail, the broad indexes made no meaningful headway and ended at the lows of the day – down 8%. The continued selling in equities that we are now seeing is truly unprecedented. The fall from a market top through a correction of more than 10% and into a bear market has never happened this quickly. The S&P 500 is down 20% in thirteen trading days. While the crashes of 1929, 1987 and 2008 had drops of equal size, equity markets were already in sustained corrections. The current unabated dive from all-time highs in stocks is unequaled. The VIX (volatility index) hit levels last seen in 2008. We are seeing real panic in the stock market for the first time in a long time.
It is in times like this that it is incredibly important to have an investment process in place that you understand and allows you time for perspective.
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