Sucker's rally?
This was another volatile week, but to the upside. 20%+ rallies during bear markets often happen. But everything is up in the air. The massive, record setting, 7 figure jump in first-time unemployment claims and the big drop in consumer confidence, were not unexpected. The exponential rise in Covid-19 positives and deaths is tragic for those directly affected and downright frightening for the rest of us. But that too has worked its way into investor expectations.
Stock market returns are the average of hundreds of millions of people and their infinite number of decisions. But your reaction to that is the only thing within your power to control. Please use your control wisely.
The amount of monetary stimulus (from the Federal Reserve) and fiscal stimulus (from Congress) that are being thrown at the economy are gargantuan. It should help us get through some of the sudden and steep recession we're in. For a few days, investors raised their gaze from the valley to the next peak. Because if the Government can bridge the economy for the next two months, then it removes worst case economic scenarios for the time being. That could mean that stocks didn't need to drop as much as they did, which means a bottom could've already been reached. Banks won't fail, many businesses will reopen their doors, and people will buy stuff besides toilet paper and canned meat - when we come out of this crisis. But there are a lot of "ifs". If the spread of Covid-19 slows. If the warm weather slows the spread of the virus. If a vaccine for it could be manufactured. If the New York coronavirus hot spot doesn't rove around the country. If investors don't lose their nerve when the horrific stories coming out of NYC hospitals reach the masses. But "if" an integral part of investing; "if" things go right. That's the theme for this week; a shift in thought from thinking what could go wrong to what could go right.
I remain 100% confident that things will go right, even if it takes longer than we expect. I am monitoring the situation very closely and constantly. An encouraging thing for long term investors is that bear markets don't reduce the probability of reaching long term goals. That's because big ups and downs average out over time. The only thing that lowers an investors' long term probability is panic selling when markets turn down, plus they miss out on the opportunity for long term compounding and dividend growth going forward.
For pre-retirees and retirees, this is why I reduce their risk profiles over time, so that when they are closer to actually needing to live off of their investments, they're not forced into selling into a down market. Recessions and bear markets don't change that.
If you don't know, I go live on Facebook, LinkedIn, and YouTube every weekday at 4:30 PM ET to add perspective to the biggest stories of the day. I talk about personal finance, investing, business, and other timely topics that I think will help you make you your best financial self. I would love for you to tune in.
Here's an episode from this past Wednesday, 3/25:
