Traders and investors are staring into the abyss in the new week after a veritable “all in” moment from the Fed and its global counterparts failed to allay concerns about an economic calamity on par with the worst collapses in modern history.
And no, unfortunately that is not an exaggeration. Some now see the US economy contracting 8% in Q2 as a result of the virus lockdown measures. The Empire manufacturing gauge plunged the most on record in March. Overnight, China unveiled the worst monthly activity data in history.
Entire economies are literally shutting down and traders simply do not know how to price the situation.
It is at least possible that stock markets will be closed globally to prevent a total meltdown. Borsa Italiana CEO Raffaele Jerusalmi hinted at that in comments to Ansa Monday. Closing markets “at aggregate level” is possible in theory, Jerusalmi said, but didn’t say that’s imminent or whether it’s been discussed.
What we know for now is that “free fall” is an apt description. The Euro Stoxx 50 is down nearly 40% in the space of three weeks, for example. Goldman suggested Friday that the S&P could ultimately fall 40% from the highs, although that’s not the bank’s base case.
As BofA points out, “the current bear market (which took 21 days to reach a 20% decline) is so far the fastest bear market in history since 1929”. This is quite something:
“It is a sad day for the bull market that was, but emotions do not mix well with investing”, BofA’s Savita Subramanian wrote Friday, in a eulogy for the now deceased.
“This selloff has been one of the sharpest declines in history, with more indiscriminate treatment of stocks vs. prior selloffs”, she went on to say.
(BofA)
And yet, the cruel reality is that missing out on the invariable bear market rallies is a recipe for almost unfathomable underperformance over the longer-haul.
What do I mean by “unfathomable”, you ask? Well, as Subramanian goes on to note, “since the 1930s, if an investor sat out the 10 best return days per decade, his/her returns would be just 91% compared to 14,962% returns since then”.
(BofA)
Nothing further.
