Investment Focus | Issue 8 | Spectacular rebound… Is this the end of the bear market?

Investment Update | Spectacular rebound… Is this the end of the bear market?

In contrast to last week, this week has been a welcome change in the markets.  After the Federal Reserve’s announcement of infinite quantitative easing, rumors of an agreement on a $2 trillion U.S. fiscal plan caused the U.S. stock market index to jump this week.

The Dow had its best three-day rally in 89 years, up more than 20%.

As much as it would be nice to have bottomed out, market rebounds are rarely “V-shaped and we are not out of the woods (Dow futures this morning -Mar 27^th– are pointing to a drop).  Although there has been a slowdown in the growth rate of new cases of COVID-19 and the situation in Italy appears to be stabilizing, it’s a different story in the U.S.

They have now passed China as the country with the most COVID-19 cases in the world.  With the fear and uncertainty, we expect there to be more ups and downs over the next several weeks, and potentially more downs than ups.

The magnitude of the economic shock of this crisis remains largely unknown, and markets do not like uncertainty.

We have been very busy at Caldwell Advisory and have taken part in numerous conference calls with fund managers in the last several weeks.  The managers we have spoken to have been very active in adding to their portfolio positions.  The market has not discriminated as everything has been pounded.  We know that some companies are more affected by this downturn, whereas some companies are weathering this period very well (grocery chains, boxed meal providers, healthcare, transportation, and technology providers like Zoom).  In addition, there are many other companies as part of the supply chain of these companies that should fare well also.

Bottom line, your fund managers are not idly sitting around, in times of extreme volatility are when active management shines best.

What is the Fear & Greed Index?

Investors are driven by two emotions: fear and greed. Too much fear can sink stocks well below where they should be. When investors get greedy, they can bid up stock prices way too far.

So what emotion is driving the market now? CNNMoney’s Fear & Greed index makes it clear.

When the S&P 500 (SPX) plummeted to a three-year low on Sept. 17, 2008 – the height of the financial crisis — the Fear and Greed index sank to 12. The index gained some ground to 28 before stocks finally bottomed out on March 9, 2009 and the latest bull market began.

Looking Ahead

As we have mentioned in our previous releases, we expect to see more extreme market volatility in the weeks ahead.  By introducing the Fear & Greed Index we will continue to keep you updated at a high level using this tool along with any relevant insightful pieces of information to continue to keep you as up to date as possible.

The Federal Government’s Economic Response plan initiatives are expected to be rolled out within the next two weeks, so if you are experiencing financial hardship, make sure to go to Canada.ca to find out if you are eligible to take part.

Our team is fully operational despite the crisis we are facing, if you have any concerns, please, reach out to us.