Review the latest portfolio strategy commentary from Mike Gibbs, managing director of Equity Portfolio & Technical Strategy.
Historically oversold conditions and optimism over substantial fiscal stimulus has the S&P 500 now up 14% from its close on Monday. Today’s positive return (if it holds) would be the first back-to-back-to- back up move since February 12th. The S&P 500 remains 25% off its highs of February 19th. Congress is reportedly very close to passing an enormous fiscal bill, which includes: $500B in direct payments to Americans, $367B in support for small businesses, $500B in support for larger businesses and states (including $50B for airlines and the travel industry), enhanced unemployment benefits, and $130B for hospitals. The Fed will also be provided a liquidity facility to lend $4T to businesses. We expect the bill to be passed in short order, given the necessity to support the economy through this dire situation. Today’s initial jobless claims reading reflects the shock from the economic shutdown, as initial jobless claims rose to 3.283M this week- shattering the previous record of 665k seen at the depths of the credit crisis!
The White House and Federal Reserve are doing everything in their power to support the economy through the COVID-19 pandemic, but the key remains the spread of the virus. Confirmed cases in the US are spiking daily, up 12k/day to 69k total in the latest reading. This results in our continued caution in the short term, as the ultimate duration and magnitude of the COVID-19 pandemic remains highly uncertain. We would not be surprised to see the S&P 500 retest the recent lows or even undercut them. In fact, it has been normal historically to do so in the bottoming process of recessionary bear markets. Over the past few days, there have been some positive technical divergences that could be signaling the market is moving from a volatile straight down phase to more of a volatile up-and-down/consolidation phase. We see downside technical support at 2346 and 2191, followed by 2131.
Regardless of where stocks ultimately find a bottom, we view the current bear market as a tremendous opportunity for long term investors. Instead of focusing on “picking a bottom,” developing a strategy to execute on the inevitable recovery is a better choice. With stocks down sharply, those with diversified portfolios and a long term outlook can buy partial positions (reserving some buying power). Even if the news is challenging and equities experience additional weakness, stocks will eventually find a bottom. As the market shifts from decline to advance, allocate additional capital. As previous bull market recoveries reveal, buying at the absolute bottom is not necessary to generate sizable returns. Bear market declines are often rapid, whereas bull markets typically last for much more extended periods of time. The average bull market since 1958 advanced by 155% (Price Change Only) over 41 months; whereas, the average bear market retreated 32% over a mere 10 months during the period.
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