The bull market would have turned 11 years old this month and was the longest and largest bull market in Wall Street history. And like a number of past late stage bull markets, this one carried unusual extreme volatility.

Yesterday’s -11.98% decline was the largest since Black Monday in 1987 in which the S&P 500 tumbled -20.5%. Since the market peak just 20 market days ago, the S&P has fallen over 37% and formally entered bear market status – making this the fastest entry into a bear market in Wall Street history.

We have seen a lot of bear markets unfold over the past 35 years, but this one is unique in several aspects:

  1. First, the trigger came from an external event (Coronavirus) that is totally unrelated to monetary policy. In fact, the Fed has been aggressively “supporting” the market since its policy reversal in December 2018.
  2. Second, there were virtually no confirmation flags of a probable or imminent recession. Instead, consumer confidence was holding near 50-year highs, and the Leading Economic Index had just broken upward to a new all-time high.
  3. Third, the selling has been extraordinarily intense and indiscriminate. In some aspects, this reflects the type of selling panic normally seen near the END of a bear market instead of at the beginning.

The bad news is that we do not have many –or any– historical precedents upon which to rely with respect to the Coronavirus pandemic. The good news is that not all of your money is in the stock market. Also, it’s important to keep in mind that while the S&P 500 Index has fallen all the way back to mid-2017 levels, most of our accounts are higher than where they started last year.

The volatility is clearly not over. History indicates it would be a mistake to sell additional holdings into this waterfall decline – at least at this time and without any solid warning flags of recession.

Thus far, both monetary and (planned) fiscal stimulus have had little effect. In fact, their announcement seems to intensify the selling rather than calm it. This leads back to the original question of how much of this selling panic is more attributable to the fears of the unknown than the reality of protracted long-term economic impact.

Never the less, we have been strategically raising cash on UP days of the market. Our goal is to have enough cash to meet monthly income needs for at least one year. In many cases, we have already accomplished this.

While markets continue to face a crisis of uncertainty, we still have unwavering confidence in the long-term fundamentals and prospects for the US economy and corporate America. As always, call us if you have any questions. Stay well and be safe!




Valley Oak Wealth Management Investment Team