As far as the stock market goes, April 2020 will be one for the record books. It was the single best month in the stock market since 1987. I bet you didn’t know that. I know it does not feel like it was the best month in the stock market since big shoulder pads, parachute pants, big hair, and the October stock market crash.
Since I am going down memory lane, please indulge me a bit more. In 1987 a Ford Escort cost $6,895, a gallon of gas was 89¢, average monthly rent was $395, and the DJIA ended the year at 1,938. There are over 396 months since the end of 1987, and last month was the best in performance since then. Crazy, right? It sure doesn’t feel like the best month, not by a long shot. It doesn’t even feel like it belongs in the top half of all months since 1987… but it does.
The market is a leading indicator. This means that it anticipates events and attempts to price things accordingly. It is clumsy and often inefficient and will frequently overshoot on the down and the up. For example, the market hit a high on February 12th of this year. At that time, Coronavirus was a theoretical issue for us, as it was happening to people who were not us. We were attending events, traveling, having dinner with friends (remember that?), going about our merry way, while the market stopped, paused and started turning south. Within weeks, it accelerated creating the quickest and sharpest decline in history, even faster than the Great Depression. This happened even before the WHO declared COVID-19 as a global pandemic.
So, the market anticipated the acceleration in COVID-19 cases (and sadly deaths) and most likely was overly pessimistic on the way down. Prior to this decline, the US was experiencing the longest expansion period in our history. Things were pretty good BC (Before COVID-19).
The reverse is also true. The market will anticipate the positive and growth long before it is perceptible by the rest of us. I remember the term coined by the former Federal Reserve Chairman, Ben Bernanke, “Green Shoots” that he identified during the financial crisis. He first used that term on March 15, 2009 to express the view that he saw signs of economic recovery. The market low during that crisis was March 9th (just six days before). The bottom was formed and only moved in one direction from March 9, 2009 to the aforementioned February 12, 2020. He was ridiculed and mocked for his comments. There were no green shoots that we could see. All we saw was destruction and desolation. But he turned out to be right and the market marched forward even while it felt horrible. Millions more would lose their jobs, walk away from their homes, declare bankruptcy all the while the market moved forward. In fact, several years after the recession had officially ended, the majority of people polled still believed that we were in one.
This brings me to my original point, that last month was the best month in the market since I graduated from college; mullets were invented, Ronald Reagan gave his famous Berlin Wall speech, and Miami Vice made pastel colors all the rage. Let’s take a quick pulse of what we are facing today. The economy is essentially closed for business, we are hunkering down in our own homes, millions are filing for unemployment benefits, and thousands of Americans are still dying as a result of this pandemic. It sure does not feel like the market should be up. It feels like we should still be wallowing in our own despair. But, as I mentioned, the market is a leading indicator and anticipates the future. It will often overshoot on the down as well as the up.
I am not saying everything is better and we are out of the woods. Not by a long shot. We may retest the lows we set back in March. We could experience a major set back and see the gains of April evaporate like the morning dew in July. However, the longer we go, and the more distance we put between the lows and where we are, the more comfortable I will feel.
My primary point in writing to you is not that I am providing some brilliant insight into the direction of the markets, but I do have over thirty years of experience helping people make smart decisions with their money. I know how emotions can get the better of us and convince us that things will never be better, but we do not operate by emotions. We operate by having a distinct process and manner in which we manage money. We follow that process, occasionally make fine tuning adjustments, and stay with what we know. We are not market timers and will never be market timers.
Trying to time the market is a fool’s errand. You may be right one time, but unfortunately you need to be right twice: getting out at the right time and getting back in at the right time. I would venture to guess those people who got out at the end of March missed the single best month in the market since 1987. Now what? Did it go up too much already, and it would be foolish to get back in now? Do you wait for it to go down again and then get back in? These are the questions that face market timers. While those who have an intentional strategy are focused on perhaps more personal concerns.
My experience has been that rebounds are usually front loaded, meaning the majority of the returns happen very early on in the recovery, the first several weeks. That may very well be what we just experienced, only time will tell. In the meantime, I cannot tell you how much we appreciate the continued trust and confidence you place in us. This is one commodity that only appreciates.
*All investing involves risk including loss of principal. No strategy assures success or protects against loss.
*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC