3/13/2020 – The Bull is Dead, but Week Ends on Positive Note

Almost 11 years to the day from when the longest bull market in history started, it officially ended when the indices closed more than 20% below the prior high. We are now officially in a bear market. The terms ‘bull’ and ‘bear’ are used because a bull attacks in a upward motion and a bear attacks in a downward motion. The length of the average bear market is 14 months. A bear market officially ends when the indices return to their prior highs. I would expect this would be on the faster side of average given the drivers of this sell-off, but that depends on how we are able to get a handle on the virus. For comparison, it took almost four years for the bear market following the financial crisis to end. After the market hit a bottom in March 2009, it took until February 2013 to reach the October 2007 high. For the week, the Dow declined 10.4% while the S&P 500 decreased 8.8%.

This was a rough week with a nice ending. Yesterday’s 10% sell-off was the largest single-day percentage decline since the 1987 stock market crash, which saw the Dow lose over 22% of its value in one day. It’s hard to believe that yesterday was a worse day than any single day during the financial crisis. People were clearly in panic mode, which is understandable watching every major sporting league suspend their seasons, seeing schools closing all over the country and thinking through how this could grind the economy to a halt. Treasury Secretary Steven Mnuchin said this morning on CNBC that the Treasury/government would provide whatever liquidity in needed during this stretch. That could be critical if we see this quasi-quarantine lead to layoffs and business closings. My hope is the government will essentially backstop payroll for a few months to get through this and potentially take steps like delaying mortgage payments/foreclosures, paying unemployment without requiring people to look for work for a few months and other similar ideas that will keep liquidity in the system to prevent an economic shutdown.

The market loved the Trump speech/presentation this afternoon. The Dow was up ~900 points when it started ~3:30pm eastern and closed the day up almost 2,000 points. The key takeaway to me was having multiple corporate leaders talk about the work they are doing in coordination with the government to help us get through this period. I think we are going to see a spike in new cases in the coming weeks and we will see additional deaths. My hope is all the voluntary closings over the next few weeks will slow this enough to keep the healthcare system functioning and give us time to test people and learn more about the incubation period, contagious period, death rate, etc, to better address the health risk. China, South Korea and Italy are starting to see decreases in daily new cases, which is a positive sign. Hopefully we are only a few weeks from a similar path.

Oil sold-off sharply again this week, decreasing another 20.2% to close at $33.12/barrel. The yield on the 10-year Treasury increased to close at 1.01%, from 0.77% last week. The average rate on a 30-yr fixed rate mortgage moved slightly higher to 3.36% from 3.29% a week ago.

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