The primary rule of financial markets’ behavior is that Mr. Market will do whatever it takes to confound the greatest number of investors, market experts, et al. No one else could possibly be so fickle and unpredictable.
I can safely say that almost no one expected the current bullish run in the S&P 500 to begin on March 24, five weeks ago, and to continue over half way back to its high point of February 19 by now. On the contrary, I wish I had a dollar for everyone on financial cable channels still expecting a drastic correction taking said 500 Index back down by 5 or 10 or 15 percent. That would be typical.
But when you and I least expect it, Mr. Market will return to his customary habits. This is often after the majority decides this time it truly will be different. As I finish this, the S&P 500 has reversed from a 1.4 percent gain in the opening minutes yesterday and fallen almost 2 percent backward by the close. Even this could be the day that marks the high-water level since March 6. Isn’t volatility a wonderful thing?
Whatever the case may become, one can already tell probable winners and losers. Which investments are most likely to succeed in these new recessionary circumstances? For example, by approximation, the NASDAQ 100 Index is actually positive by over 1 percent year to date through Monday’s close. On Feb. 19, its high point, it was up by 11 percent.
On the other hand, Monday afternoon, the S&P 500 was still down by 10 percent and the Dow Jones Industrials Index was lower by over 15 percent year to date. The latter is especially weighed down by Boeing, now on sale at 60 percent off!
Why would the NASDAQ 100 be so far ahead? Its relative strength comes mainly from the technology and biotech/medical companies it contains. Consider that Tesla was 90 percent higher so far, followed by DexCom at 53 and Regeneron Pharm at 45 percentages respectively.
However there are some dogs inside too. United Airlines was 71 percent cheaper. Jeff Bezos, largest owner of Amazon, could buy both Boeing and United!
Investing folks are trying to predict what services and companies will be essential in this brave new world of deadly viruses and lots of homework. Think Software. Speaking of unlikely rebounders, Simon Property Group, owner of many huge shopping malls, is making a valiant attempt to come back from a near-death state. It has finally gained over 20 percent in the past two days. I just wonder if anyone but pre-teens will be hanging out or spending some money at major malls ever again.
Other winners this year thus far are gold/silver mining stocks, gold itself, electronic gaming, groceries (of course), health information services, and the Amazon/Wal-Marts of the nation. Losers include the restaurant industry at 23 percent and U.S. bank groups between 24 and 40 percent lower. I suppose no one will eat out or borrow money in the future, at least not for a while.
Almost everyone also thinks Mr. Market will regain the mountain tops within a couple of years from now, perhaps sooner. We are among those. But between now and this year end, tighten your seatbelt and count on a skilled driver to get you there safely. As we will repeat, do not give up and lend your money to the federal government at the new five=year rate of less than a four-tenths percent per year.
(Past performance is no guarantee of future results. Advice is general in nature and not intended for specific situations)
(Statistics from Worden Brothers, Inc., TC2000 software, 2020.)
Ron Finke is president of Stewardship Capital in Independence. He is a registered investment adviser. Reach him at firstname.lastname@example.org.