an ugly day…

…but this sort of stuff happens.

I don’t think today’s decline is about oil or Donald Trump or the pandemic.

The 2020 low (so far) occurred about a month ago.  If we’re going to return to “test” those lows, now would be about the time, based on past occurrences, when the market would flatten out and begin to drop.  This may be the first step down that path.

There is an alternate pattern, which I’ve been thinking about a lot since hearing the double bottom thesis being almost universally accepted.  It’s the somewhat older idea that the market pulls out of a nosedive when policy measures are put in place to address the problem that has been forcing the market down.  There’s an initial anticipatory rally, followed by sideways movement until the market gets hints that corporate earnings are beginning to improve.  That’s when a sustained upward market movement starts.

We’ll have a better idea in the next couple of weeks whether this market is following either of the two patterns.

An aside, sort of:  I read newspapers online from the US, the UK, Germany and Japan every day.  Well, at least the headlines and I catch up on the weekends.  I’ve noticed a significant increase in the number and bluntness of negative press comments about Mr. Trump and those who surround him, on two fronts:  that local leadership may be totally inept, but at least it’s better than Trump; and growing dismay at his white racism and his constant lying.

We’ve already seen the economic damage he is doing to the country reflected in the 15% fall in the Russell 2000 since his inauguration (with the lion’s share of the pain inflicted on his supporters (vintage Trump, in my view)) vs. a 50%+ gain for NASDAQ.  If there were an obvious alternative to Wall Street, I think we would already be seeing multiple contraction as well.

 

If I’m correct, investors like us are facing an unusual conceptual decision:

we’ve already had a short back-from-Chapter 11 rally among domestic firms hurt by the fact of the coronavirus and by the continuing bungling of the Trump administration.  At some point there must be a market move to sell winners in order to pick and choose among this wreckage.  On the other hand, the more Trump we have the more damage to the second group–therefore the shallower and shorter-lived any bounce will be.

Taking a somewhat longer-term view, given that the Democrats have yet to address any of the social issues that caused ordinary citizens in rural America to choose Trump–poor schools, jobs, medical care…–it’s at least thinkable that he will be reelected.  If so, London and Hong Kong may look like better bets than Wall Street.

My instinct at this point is to get ready to buy hotels and maybe restaurants but to wait before acting to see how the overall market will develop over the next couple of weeks, as well as whether the rush to reopen some states will turn into the medical disaster many fear.

 

 

 

2 responses

  1. Thanks for your comment. My guess, and that’s all it is, is that we’ll be seeing signs of recovery before the end of the summer.
    Everyone is euphoric at the top and frightened at the bottom. The first priority in either case is to avoid doing something that’s based on the emotion you’re feeling at the moment and that almost invariably you’ll regret later.
    Hiding is a perfectly acceptable response. Watching prices,doing trades on paper only and seeing what happens might be better if you want to gain skill as an active investor. But no one says you have to.

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