The S&P 500 Futures are down 4.6% and West Texas Intermediate Oil is down 22% as we write this. In our opinion this weakness has reached many extremes but doesn’t change our game plan of expecting a multi-week rally followed by a test of the low.
Summary. While a more dire economic outlook as the global COVID-19 virus spreads could drive stocks lower over the very near term, it will also bring monetary and fiscal stimulus to slow the slide. Given the historically oversold condition, the market may be set up for a “rip your face off bounce” before ultimately heading back to the low as the weaker economic data begins to emerge a few weeks from now. The volatility we have seen is unlikely to change, with both historic up and down days as was the case in 2011. It is too early to suggest an imminent recession, but at least some expectation of one has filtered into the psyche of investors after the past two weeks given the previously highlighted asset class de-risking. Even if one comes, we would wait for a multi-week reflex rally before reacting to it.
Past performance is not a guarantee of future results. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. All data points are sourced from Bloomberg as of 3/08/20 9:30pm unless noted otherwise.
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