As I write this, the S&P 500 (SPX) Futures are down over 2%. The fear of the spreading Covid-19 and the resulting economic and corporate impact is accelerating by the day. There truly is no way to quantify the impact and as a result, long-term interest rates continue to decline in anticipation of a potential recession. The 1-year and 10-year U.S. Treasury yield has dropped to 0.34% and 0.76%, respectively.
When we downgraded our market view on January 20 due to the upside hysteria and outlined what it would take to get us back on offense, and have since put forth a very clear game plan following the 12% “whoosh” lower last week. This type of action is scaring everyone but it is not unique – it is what happens when you get a very sharp “crash-like” decline. My friend Walter Deemer, a market technician and historian, pointed out yesterday that following the August 2011 decline of 18%, there were seven instances of 90% upside days (90% of NYSE total volume was positive) or back-to-back 80% upside days, and nine 90% downside days – all of that in between the initial low in August and final low in October 2011. In other words, when the market tanks, very sharp volatility can remain for a while and there is no reason to take too much from any single day.
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