Historic may be the single best word to describe what we experienced in March. We saw the 4 biggest one day point declines in history for the Dow, we saw the 2 biggest one day rallies in history for the Dow, we saw the worst week for stocks in 33 years, the biggest 3 day rally in 90 years and the best week since 1938. We said in last month’s update that coronavirus news would likely dictate market movement in March, but we had no idea the corona panic would result in the virtual shutdown of the entire U S economy. The market went from a record high to the first Bear market in 11 years in a mere 16 sessions. Uncertainty dominates our lives and if it is one thing the market dislikes, it is uncertainty. We have been buyers on the dip, but the historic nature of the market movement has made timing a challenge. At the end of the month the S&P 500 had dropped 12.5%, ending the worst first quarter for stocks in market history. The widely followed index is now down 20% for the year. All asset classes were volatile with oil dropping 55% to an 18 year low and the yield on Treasury bills went into negative territory for the first time in history.
After a strong sell off during the last week in February, March began with what was then the biggest one-day point gain for the Dow in history. The market rallied strongly on the first Wednesday after Biden won a couple of key primaries and received some endorsements, diminishing Sander’s hopes, but the week ended with a selloff as the coronavirus continued to spread. At the end of the first week the S&P 500 was up .6% for the month. The second week saw the collapse of oil prices and the continued spread of the virus. 3 days during the week saw stock futures “limit down” before the open and by Thursday the S&P 500 was more than 20% below its all-time high, technically ending the 11-year bull market for stocks. The week ended with the S&P 500 down 8.8%. During the 3rd week we started to see businesses and schools shutdown and a recession became a given rather than a fear. The Federal Reserve took extraordinary action to support the economy and Congress began work on a multi-trillion dollar economic support package. It was the worst week in 33 years for the market and the S&P 500 finished the week with a massive 15% decline. Last week we saw the S&P 500 hit a new 52 week low, 35% below the all-time high from just one month ago, but the market rallied nearly 20% in 3 days, its best 3 day performance in 90 years, before a Friday selloff ended the week with a still impressive 10% gain. Last week’s buying continued into the last couple days of the month as some were seeing bargains.
As we move into April it is obvious corona news will continue to dominate the headlines. Many think the virus will peak in mid-April and things will start to improve. We are finding it is a lot easier to shut things down than it will be to reopen. Over the weekend President Trump extended the social distancing protocol until the end of April. Stock valuations will depend a great deal on how quickly consumer spending recovers once the various bans are lifted. If consumers quickly return to normal we could have ‘V’ recovery pattern, but it is more likely to take some time which would mean a ‘W’ type of recovery pattern. I think it is fair to say we are in for a prolonged period of recovery and stock valuations will be subject to swings. With that said, years from now we will likely look back on this period as a time when stocks were a good value.
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