How low can we go?

[FIREshrink]

I agree. I think the market's going to go lower if only just because this disruption to the economy seems like it should be bigger and more drastic then the last couple of major pullbacks. But I'm not quite sure when that message is really going to be common knowledge. I think we as physicians have a slight advantage in knowing that this virus is not just going to go poof and everything is back to normal. I feel like a lot of people I talk to think that is going to be the case. And I also question how many influential people in the economy really understand the gravity of the situation.

I am sure when things do start moving again there will be some catching up to do in some industries where people have delayed things but if somebody missed a cruise I don't think they're going to go on an extra Cruise later this year or next year. Especially if that person's finances were impacted. Then again I like to think of myself as a financially responsible person and maybe most people would go on an extra Cruise if it could be done cheap enough for on credit.

like most things with the stock market and economy I think there are just way too many variables to account for them all.

First, I have no idea where this goes. We could have hit bottom already; we could fall another 50% or more. Nobody knows. A lot depends on the science of the virus and its containment/treatment, and your guess is as good as mine there.

But the market fell 35% at its peak. That’s only happened a few times in modern American history. The market has fallen 50% only about 4 times. So this magnitude of decline is already pretty rare. If you believe this is going to be one of the worst and longest economic catastrophes in our history, it should go down 50% or more, total. If you think we sort of dodge a bullet, then 50% would be overwrought.

The constraint on this argument is that US stocks were quite expensive when this downdraft began. That argues for a bigger loss than normal. Even know, CAPE is higher than the long term average or the recent average. So stocks still aren’t cheap.

I personally think the market will not drop more than 20% from its current level, and if I was forced to bet I say we’ve already hit bottom.

But my IPS is unchanged, I’m 2/3 stocks, 1/3 bonds, have rebalanced a single time, and don’t plan to do anything different no matter what, even though my small/value/international tilt has been an absolute dog for, like, forever. I’m comfortable holding this allocation for the next 20-30 years.

[Jack_Sparrow]

I personally think its "bottoming out" .Don't get me wrong I think it could drop 10% in a day tomorrow, but within a week of that drop it will recover essentially where it is now. Which I don't really consider it dropping if it recovered within a few days to a week. I don't see it recovering back to highs though for a significant amount of time. Big time investors are going to sit on the sideline till the election is over. Plus its going to take companies awhile before they get back to decent earnings.

[Lordosis]

I personally think its "bottoming out" .Don't get me wrong I think it could drop 10% in a day tomorrow, but within a week of that drop it will recover essentially where it is now. Which I don't really consider it dropping if it recovered within a few days to a week. I don't see it recovering back to highs though for a significant amount of time. Big time investors are going to sit on the sideline till the election is over. Plus its going to take companies awhile before they get back to decent earnings.

It is awfully hard to separate what is exaggerated Brownian movement vs record breaking rises and falls.

[Zzyzx]

It is awfully hard to separate what is exaggerated Brownian movement vs record breaking rises and falls.

record breaking rises and falls are just volatility and that's not good

[Jack_Sparrow]

The volatility is just wild. Throw a dart and buy a stock and sell it the next day and you might have made 5%. Part of me thinks its all these puts/option traders, and folks shorting the market who are causing these swings. I suspect there are going to be a couple of people who've had enough and sell everything, but beyond that it just seems like everyone was over extended and that came crashing down. Would be interesting to see how Active Managers (professionals) are handling this.

[Zzyzx]

Public Health: This will be one of the deadliest and darkest weeks in US history.
Market: +5%

[Lordosis]

Public Health: This will be one of the deadliest and darkest weeks in US history.
Market: +5%

It just does not make sense. And as humans we want to make sense of things. I really feel that we find whatever detail we want to explain the situation just to satisfy that urge. It does not have to be right it just has to make sense.

2 days of lower cases in NYC. That must be it. The only thing that makes sense.

When in doubt just say that it was already priced into the market.

[EntrepreneurMD]

Sometimes the market sells on the good news and buys on the bad news simply because the news is now out there and in the rear view mirror moving forward.

That's why I predicted a major sell off post inversion (after typical post inversion melt-up) while everyone was arguing the consumer and economy were really strong - that news was already baked in at the time.

[Dusn]

I find it interesting how most people seem to be trying to forecast the economy and stock market independently of trying to predict the ultimate outcome and duration of Covid-19. To me it seems like the duration of Covid-19 will determine what the market and economy does.

[EntrepreneurMD]

Huh? What if there's another catalyst, either positive or negative? The economy and market do not move to the impact of just one catalyst.

[Zzyzx]

+7.6%
Covid's cancelled, game over man
where's my toilet paper??!

[jacoavlu]

I find it interesting how most people seem to be trying to forecast the economy and stock market independently of trying to predict the ultimate outcome and duration of Covid-19. To me it seems like the duration of Covid-19 will determine what the market and economy does.

I don't think many people are trying to forecast things beyond in a casual, conversational nature. Not with actions. In other words, I think most people around here are staying the course, not trying to time things.

[AZdoc68]

It just does not make sense. And as humans we want to make sense of things. I really feel that we find whatever detail we want to explain the situation just to satisfy that urge. It does not have to be right it just has to make sense.

2 days of lower cases in NYC. That must be it. The only thing that makes sense.

When in doubt just say that it was already priced into the market.

Actually, it makes perfect sense to me--the market looks forward.

According to the experts we are ~ 7 days away from "the peak" nationally. But it appears (fingers crossed) we are past the peak in the NYC area which was the hardest hit area of the US. If that's true, then the models/estimates were way, way off in terms of hospital beds, ICU beds, and ventilators needed which is a really good thing. Combined with the fact that Italy and Spain finally seem to be getting better and there's finally reason for hope.

So it's not surprising the market rallied 7% today. The past few days were the first good news there's been in a while.

My guess is that the bottom is in IF this recent trend holds and continues. If not (which would dispel hope of getting the economy opened up in May), then I think we are heading considerably lower.

[Dont_know_mind]

Idk,
If that was the bottom, then this would be the shortest bear market to date (less than 3 months).

I suspect, but could be wrong that it continues for another 12 months. If it was the bottom of the bear market, that is awesome because everyone, me included is short cash considering the volatility.

In my case, I will be hoarding cash whatever happens in the next 12 months:
A) If that was the end of the bear market and we get to new highs, then my risk assets will do well and I will be hoarding cash in the next 12 months.
B) If that wasn’t the bottom, then my risk assets will be doing not so well and I will be hoarding cash in the next 12 months also.

If I had to guess, and what I am prepared for is a low in around 12 months of around SP 999. Anything is possible though and it could be 666 or 4000 in 12 months. I am trying to make sure I will do ok whatever happens.

[Tim]

Fear and uncertainty abound. The key is to not lose your head and sanity. Avoid big mistakes.
Healthcare Risks-
Under estimated but a better picture. Ups and downs but short term huge, solvable in about 1 year.
Economic Risks-
Under estimated but less clear. The containment and mitigation has caused caused damage. To me the global China/US trade war comes down to two basics. Cheap labor and food. Food wins if the US plays it’s cards right. Tariffs are bluffs in playing the cards. The US economy will benefit by bringing core production and services home. Food production in the US is primarily a natural resource advantage. China is at a huge disadvantage. Five to ten years, China would starve, US would be self sustaining. Maybe short a few IPhones.
Market Risk-
Again, underestimated but more certainty. Prediction is that huge changes will take place to improve the productivity of our own education system and immigration to provide the manpower to support a ton of new businesses. Consumption up, productivity up, consumer spending and demand up, stock market way way up. Five years max. The market will boom once the path of the economy gains a little more clarity. That will happen once the healthcare situation is resolved, probably within a year so people can get back to going to work without fear and uncertainty.
I don’t see a depression, I see volatility. Ups and downs until the Covid-19 has a treatment followed by a vaccine later. Not going to try to time it.