Market Minute – Market Volatility Update

The current hysteria about COVID-19 is both a supply and a demand shock to the economy that will likely lead to slower growth and lower inflation in the short-run. From Ned Davis Research today: “While the fallout from the virus raises the odds of recession, there aren’t yet widespread signs of one in leading indicators.  Positive consumer fundamentals, housing market momentum, monetary and possibly fiscal stimulus provide offsets to a fallout from the virus.”

Have a look at these articles for some perspective. I offer them not because I believe they are correct, but because they provide an offsetting view to the hysteria that the media has been stirring up. I really believe the media information flow, especially from social media, has intensified and increased anxiety in the public in the last five years.

Virology expert: coronavirus mortality ‘keeps coming down’

COVID-19 isn’t as deadly as we think.

My expectation is that this market turmoil ends in one of two ways. A late summer 2011 experience with multiple ups and downs that are agonizing for some, but resolved upward in Oct. 2011. Alternatively, it can be something like the experience of 2018, when the world was convinced recession was coming and the market was going to decline forever. Based on the weight of the evidence, the 2018 experience, where the market drops to the red line in the chart below then rebounds strongly, is probably the worst-case potential outcome this time around.

Today was another weak market day, where over 90% of issues were to the downside. It’s actually possible that this is the beginning of a reversal process. Either way, I believe odds favour one of the two outcomes mentioned above. In the mean-time, should information change, we will move to further reduce your exposures by selling stocks tomorrow or Monday.

There is a saying we use in this business about not confusing brains with a bull market. I think here we should also not confuse something historic with an overdue uptick in volatility.

Download PDFMarket Minute – March 5, 2020

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