I hope you and your family stay well at this special time! Even we stay home it’s hard for us to ignore the message from Spring. Will our stock market and portfolio also have a glimpse of spring coming?
We witnessed one of the greatest financial market turmoils in history for the past month. As of March 20th, which is the date of New York lock down, S&P 500 dropped 32% from its February peak. The next Monday, on March 23rd S&P500 dropped again because of difficulties in reaching a rescue plan agreement and finally dropped 33.9% from the February peak. The velocity and the magnitude of the stock market crash were only seen back in Year 1987.
The leading cause of a bear market varies every time. Since Year 1926, including the current Covid-19 bear market, there are only nine bear markets. The limited number of samples makes any prediction out of statistical model impossible and unreliable. Though simple statistics helps us understand the pattern to some extent. We must do research on specific cause of each bear market, analyze different scenarios, and make decision accordingly.
There are so many uncertainties in predicting the course and outcome of Covid-19 outbreak. Even sophisticated models such as the one from Imperial College are beset by insufficient data. So does economic model based on the epidemiological model. But what we observed from current statistics is that the fatal rate for younger people without comorbidities is relatively low. If there is a wide spreading testing and tracking system, it’s possible for people to come back to work and reopen the economy again. In addition, the government promised to make whatever to rescue the economy. It will take some time to unclog the economy. But as we have more knowledge about the virus and how we can handle it we will see economy gradually recover. We saw a 25% reversal from market’s March 23rd low until today, which reflects the confidence in government’s policy to bring down the infections and supports for the economy. However, there are still some risks down the road. And we must be very careful.
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