The Bear Finally Came Out of Hibernation

[Dogpeace]

Those fast market turnarounds are usually associated with no underlying economic issues. I don’t think we are in that scenario. Ultimately the markets are realizing that many (most?) Americans are going to be staying home and not out spending, and that has a huge economic impact.

Yes indeed. If the virus was eradicated today there has already been much economic damage which would take years to heal.

Also likely to create impact is heavy corporate debt. Latest tax and interest rate cuts encouraged corporate America to borrow heavily with really cheap money and spend it buying back shares.

So even though the company is no more profitable the share price skyrockets and people with stock suddenly find they own a larger piece of the company than they did before. Stockholders rejoice even though the root is borrowed money. It is like getting a huge home equity loan, depositing the proceeds in the checking account, and feeling richer, even though net worth did not change. All a house of cards finally starting to fall, courtesy of a virus.

 

[aiken]

The market has been purely momentum driven for several years now. The slow growth/no growth low yielding dividend "aristocrats" (HSY, PG, et. al) are about to get their comeuppance. As will the high flying growth at any price stocks like TSLA, NFLX, FB, etc.

 

[Bongleur]

I remember what happened to the asking price of Treasury bonds in the Great Recession. But if you buy "today" will you see the same percentage rise as last time, since the coupon is essentially zero instead of 6% ? I don't know how to separate the "market demand" value from the intrinsic value.

 

[W2R]

This bear is standing tall and FIERCE!

+10000000000
What a drop!! WOW.

I just had to go somewhere and sputter about it so here I am. WOW. I lost enough that I am back to where I was a year ago. I'll be fine, of course, but wow, wow, wow, what a drop. I am amazed. Life is full of surprises, huh?

I changed my avatar. Now, time to hang on like a piranha as we embark on what could be a rough ride.

 

[audreyh1]

Current Shiller PE Ratio: 23.54 That's quite a drop!

Of course, earnings are always delayed. They were showing earnings data through Dec 2019, but that got yanked, and now only showing data through Sept 2019.

And when reported earnings drop, Shiller PE will go up again. It's not really something you can get a short-term read on, but OK looking back 3-6 months.

 

[aiken]

I need to see one more card before committing any of my cash to the market. It's simple. Are there a large number of COVID positive folks who are mildly symptomatic/asymptomatic? If so, the mortality rate is substantially overstated, as the most critical cases are coming to the forefront. If that hypothesis turns out to be correct, expect the mother of all melt ups.

 

[MuirWannabe]

Can someone smarter than me explain why my muni bond fund is getting clobbered also? I thought bonds were supposed to hold their own in times like these. But in the last 3 days my VWIUX fund has dropped hard. Today down .36 cents, when normally a move of 1 penny up or down is standard. And that’s on top of two really bad days before this.
While equities are killing me, I’d at least like to see my bonds hold up.
Appreciate any understanding on this.

 

[brewer12345]

Can someone smarter than me explain why my muni bond fund is getting clobbered also? I thought bonds were supposed to hold their own in times like these. But in the last 3 days my VWIUX fund has dropped hard. Today down .36 cents, when normally a move of 1 penny up or down is standard. And that’s on top of two really bad days before this.
While equities are killing me, I’d at least like to see my bonds hold up.
Appreciate any understanding on this.

Credit markets of every description are freezing up, and that includes munis. It will eventually thaw, but expect more lumps and bumps until it does.

 

[Octogirl]

So after seeing the market drop this afternoon, I started my tIRA to Roth conversions. Just a little of what we plan to do......
If market continues to drop, we'll do more sooner instead of waiting until December.

 

[audreyh1]

Credit markets of every description are freezing up, and that includes munis. It will eventually thaw, but expect more lumps and bumps until it does.

Yeah, I guess even treasuries somewhat as people are needing dollars? Selling treasuries to cover other things?

 

[audreyh1]

OK - wikipedia already has a Black Monday (2020) article that includes mention of a Black Thursday (2020). https://en.wikipedia.org/wiki/Black_Monday_(2020)

 

[brewer12345]

Yeah, I guess even treasuries somewhat as people are needing dollars? Selling treasuries to cover other things?

Hard to say on treasuries. Since treasuries and gold are slipping on days when equities and credit are a bloodbath, I imagine those getting margin calls are selling what they can to meet the calls.

 

[MuirWannabe]

Credit markets of every description are freezing up, and that includes munis. It will eventually thaw, but expect more lumps and bumps until it does.

Well, so much for bonds being a balance for bad times. Don’t really understand what you mean by freezing up. But I trust your opinion that it’ll get worse. Seems to be the order of things for now.

A selloff was very understandable. But this is so fast and is getting out of hand. There is literally almost blood in the streets. One more big drop like today and I’m buying equities. With the bond money that’s not helping me out much right now.

 

[audreyh1]

Hard to say on treasuries. Since treasuries and gold are slipping on days when equities and credit are a bloodbath, I imagine those getting margin calls are selling what they can to meet the calls.

Yeah - if they can't sell other stocks to cover they have to sell treasuries and/or gold?

 

[SeattleRocks]

I don't think we are even close to being done yet with this fall. Fear is a pretty strong motivator and this virus thing is just getting started. What keeps coming to my mind is that we really don't have any models for a pandemic in history on the market. We don't know what we don't know - uncharted waters.

And markets hate uncharted waters where the punches keep coming.
Hate to say it, no scientific evidence beyond just historic P/E rates to guide me, but my sense is that we see Dow 18,000 in the near future. Unemployment, defaults/bankruptcies, and lower housing prices are all going to be in play soon as well.

I kept my powder dry and will start averaging into the market if I see it plummet to these levels. But just don't think we are even close to the bottom yet with a lot more pain to come.

It will be interesting to see what our government leadership does next. Its an election year so I think after their initial fumbles, they are going to pull out everything they have and go big...will see how that impacts things.

 

[brewer12345]

Yeah - if they can't sell other stocks to cover they have to sell treasuries and/or gold?

Correct.

 

[brewer12345]

Well, so much for bonds being a balance for bad times. Don’t really understand what you mean by freezing up. But I trust your opinion that it’ll get worse. Seems to be the order of things for now.

A selloff was very understandable. But this is so fast and is getting out of hand. There is literally almost blood in the streets. One more big drop like today and I’m buying equities. With the bond money that’s not helping me out much right now.

What I mean by freezing is that these markets have basically shut down so anyone who needs to sell gets a distressed price.

 

[audreyh1]

Not to pile on - sorry - but I’m just amazed at how few trading days it took to go from peak to over 20% down on both the Dow and S&P 500. Never seen anything like it!

The Dow Jones Industrial Average fell 10%, posting its largest one-day percentage drop since the October 1987 crash. That day, the Dow collapsed by more than 22%.

The S&P 500 joined the Dow in closing Thursday’s session squarely in a bear market, down more than 20% from the all-time highs set just a month ago. The indexes also ended an 11-year bull run, the longest on record. It took the Dow just 19 trading days to fall from a record high into a bear market. The S&P 500′s move was even swifter, taking the broad index just 16 trading days to tumble into a bear mark

By my calcs the Dow is down 28% from the Feb 12 closing all-time high.

 

[Toocold]

I don't think it's the virus itself that the market is reacting to, but rather our government's inadequate response to the situation. If by now, the government reported out the # of tests that have been delivered, have done, what the findings were, what specific steps are being taken, and progress that has been made, the market wouldn't have fallen so sharply. I think the lack of strategy, structure, process and transparency is making the situation worse.

With that said, I went in another 10% of my cash into the market today simply based on technicals, but I feel blind here and I suspect everybody else feels the same way. I think in 5 years these will be good investments.

 

[eroscott]

Is there another place to look at futures besides these (for comfirmation):

https://www.investing.com/

 

[Free To Canoe]

Yea, I know. Damn bear got my bird feeders last night!

 

[audreyh1]

Is there another place to look at futures besides these (for comfirmation):

https://www.investing.com/

I use the CNBC app.

 

[38Chevy454]

I don't think we have hit the capitulation point yet. Where the non investor types just can't take it anymore and sellout and get out of the market. Thereby locking in their losses, and finally reducing the number of sellers. Supply and demand, too many sellers makes prices drop.
Once that capitulation happens, the bottom is close and IMHO is the time to start buying again. Until that capitulation point, I would sit back and wait.
In other words, the bear is still present and causing some more dropping.

 

[Fermion]

You won't know the bottom just like nobody really knew the top. You can get close but very hard to time the exact bottom or top. I like buying a little as it falls, but I am holding off for a week or two to see how many cases pop up in the USA.

 

[audreyh1]

I don't think we have hit the capitulation point yet. Where the non investor types just can't take it anymore and sellout and get out of the market. Thereby locking in their losses, and finally reducing the number of sellers. Supply and demand, too many sellers makes prices drop.
Once that capitulation happens, the bottom is close and IMHO is the time to start buying again. Until that capitulation point, I would sit back and wait.
In other words, the bear is still present and causing some more dropping.

That's the thing- reaching capitulation takes time. This has all happened too fast for hardly anyone to even throw in the towel! I have never seen anything drop so fast and I've been through two very nasty bears.

I think that I much prefer a slow grind down!!!

This has knocked our net worth back down to about mid 2017 - but we've also been spending, gifting and paying taxes for the past 3 years.