FYI | Mar 31 2020
By Peter Switzer, Switzer Report
It’s times like these when I have to write a better story than one I wrote way back in December 2008. Yep, it was the GFC and the Yanks hadn’t gone for broke on their mega rescue plan, Lehman Brothers had failed and negativity was on the rise.
S&P 500
Source: macrotrends.net
Look at the steep market slump in late 2007 to early 2009 (i.e. the GFC) and note how aggressively it climbed out of that slump. Remember this if you’re thinking about going to cash and ask yourself these questions:
- Do I really have to go to cash?
- Could I miss the rebound?
- Am I better off sitting tight and waiting for the market comeback?
Oover the past seven years for US stocks, if you missed the best 10 days, your overall returns would be halved. And that’s why not getting in and out and trying to time the market is a risky play.
Need more convincing? Well, have a look at this chart from Morningstar.
“Missing the single best month during a year drastically reduced returns,” writes Morningstar’s Tom Lauricella. “During years when returns were already negative, the effect of missing the best month only exaggerated the year’s loss. And in seven of the 49 years shown (1970, 1978, 1984, 1987, 1994, 2011, and 2015), missing the best month would have dragged otherwise positive returns into negative territory.”
Tom makes the point that “successful market-timing may improve portfolio performance, it is very difficult to time the market consistently,” which I totally agree with.
A big reason I believe we’ll see a stock market rebound is the magnitude of the stimulus packages around the world and even here we’re scheduled to see an Mk III stimulus package this week. Ours is close to 10% of GDP, the Yanks are in the 10% of GDP neighbourhood and could easily go higher, while the Germans are throwing 30% of GDP at their problem!
You have to remember that when stock markets saw the penny drop on how bad the Coronavirus could be on 21 February, the freefall was based not only on the fear of what a world lockdown might mean, there was also no take on what central banks and governments would be prepared to do to help economies.
S&P/ASX 200
The low for the S&P/ASX 200 Index was 4546 so the 8% or so bounce-back in the Index represents how the stimulus package pluses are whittling down the negatives of the virus infections and deaths data and the cost of the containment policies.
I’ve said all along that you can forget about economic data and concentrate on the virus-related data. Chris Joye and his research team at Coolabah Capital Investments are dedicating a lot of their time to watching the virus data.
“Assuming, for example, that Australia and the US are only half as good as South Korea at containing the virus, we should be able to observe a decline in new infection numbersby the second half of April. This could be an important inflexion point for markets insofar as they’ll be able to see across to the other side of the fiscal and monetary policy “bridge” that has been belatedly built by governments.”
On Sunday, this is what his update said: “Australia’s peak new infection numbers are realised between April 4 and April 11,assuming it is 50% as effective at containment as South Korea and 75% as effective as Italy.”
If we can be cheering a flattening to falling infection curve by the dates Joye cites above, the stock market will celebrate that news with a decent bounce and you don’t have to be me to work that out!
Joye’s team thinks the US will see a flattening of the curve by late April and Chris says Microsoft’s Bill Gates is coming to a similar, albeit cautious, conclusion. These look like the best-case scenarios and you have to hope they’re on the money.
Personally, I don’t know if they’re right but I’m sure hoping and praying that they are.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
Content included in this article is not by association the view of FNArena (see our disclaimer).
Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
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