The Bull Market Appears to be Over

The bull market appears to be over. The S&P 500 Index and the DJIA are down about 20% from their respective peaks.

The steep sell-off is being driven by the uncertainty created by the coronavirus, which was called a pandemic by the World Health Organization on Wednesday. Volatility is being exacerbated by algorithm-based trading programs that dominate the Wall Street.

We know that investors move to a risk-off posture when uncertainty rises. Today, the range of economic outcomes has substantially increased—all to the downside.

Yes, the economy was accelerating in February—strong job numbers, a rise in small business confidence, and a service sector that appears to be accelerating. The Atlanta Fed’s GDPNow model places Q1 growth at a strong 3.1% as of last Friday.

But the data survey occurred before COVID-19 swamped the economic landscape.

While important sectors of the economy are getting hurt, recent news has been cautiously encouraging.

Though layoffs may loom in the near future, Thursday’s first-time jobless claims report came in at a low level of 211,000, the U.S. MBA Purchase Index, a weekly review of mortgage apps for home purchases, was upbeat, and retail staples are flying off the shelf.

Goldman Sachs expects S&P 500 profits in 2020 to fall to $157/share versus its forecast two weeks ago of $165, when it backed away from its $174/share forecast. Analysts surveyed by Refinitiv see $173.30.

When a the economic landscape gets socked in by fog, investors can quickly get disoriented. We get that. How might we get rid of the fog?
​
The New York Fed announces a major injection of liquidity into the financial system on Thursday amid signs of disruptions in the bond market.

The Fed will offer at least $1.5 trillion in repo operations over the next couple of days, with one- to three-month settlements. It will also offer significant amounts of overnight cash.

The $60 billion in monthly T-bill buys will no longer be restricted to the short end of the curve.

The Fed said, “These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak.”

Monetary policy muscle can be used to help address liquidity issues.

New cases in South Korea appear to be plateauing—encouraging...

If you can believe the numbers, the same thing appears to be happening in China...

Despite the uncertainty and the sense that "it's different this time," we’ll get through this, and this too shall pass.
​
Wash your hands, don’t touch your face, follow health protocols, and please keep the age-old adage in mind. Panic is not a good strategy.