Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
It May Be a Bear Market, But It’s Not a Panic. That’s Worrisome
Here is a review of some current market readings. It's hard for me to see a lasting rally from current market levels. Too much is uncertain. I'll continue to sit on set aside cash for now.
Tempted to say that articles like this are examples of panic themselves. That aside, it could certainly get a lot worse. A lot depends on the Fed. I think’s they’re largely playing a bluffing game right now and it’s hard to know how much pain they’re willing to inflict. Once the economy starts to tank both inflation and interest rates should come down. Volker is heralded as a hero, but the pain / unemployment inflicted on the working class was immense. People tend to forget.
The Fed’s control is at the short end - but there are ripple effects. It’s been pretty brutal already. When I look at some of TRP’s conservative funds like TRRIX, PRSIX, PRWCX and see them down 10-12% or more this early in the year, that’s a sign of the carnage.
I don’t know. Been slowly ramping up exposure to equities all year. Am aware equities can be a bottomless pit under some unusual circumstances (ie the 1930s). Should the markets crash by 50% or more, we’ll have a lot more to worry about than our pocketbooks. Remember that things are seldom as gloomy or as sunny as they look,
The interesting aspect is the damage in bond land. That’s why folks may not be moving out of equities. Pick your poison. I may attempt to time certain sectors if I think they’re relatively cheap or expensive, but not the broad based market. Think I’ve mentioned a small hold in a bear fund, TAIL, It had a decent week. Has helped dampen volatility. Actually down 1% YTD.
The VIX is a handy metric to watch. Like the article shows, it's turned back from just below 40 a time or two during this escapade. In March 2020 (3/18/20 to be exact), it hit 85.
Several people in the media are calling for VIX to be 40+ (without mentioning how much above 40) and then hope that this market will reverse. Do they realize that VIX has been almost there already? VIX was 39 on 1/24/22, 38 on 2/24/22 & 3/8/22, 37 on 5/2/22.
All the stock market decline has done so far is to take its value back to early January 2021. But, gains since then occurred in a TINA market supercharged by pandemic stimulus support. Bond yields are now getting high enough they may begin to provide some competition to stocks for investor dollars before too long. A somewhat successful and plausible outcome to the Feds current tightening cycle would involve them tightening rapidly until the economy shows signs of slowing towards the edge of a recession. That outcome could leave inflation above the Feds target for some time if the economy and earnings display some resilience in the face of the tightening. The Fed would then continue to more slowly continue to work to rein inflation. So, we could be left living with stagflation for some time. That environment could reasonably continue to favor slow growing, dividend paying value stocks. Some of the alternative scenarios are less optimistic than this one.....This is one type of speculation that currently keeps me from increasing my stock allotment above the level it was at the start of the year. But, a capitulation event could change that.
Agree.@davfor lays out a nice case. I don’t think we’re presently near the bottom of the bear market (term applyed by Forsyth this week). But we’ve made a lot of progress in that direction with the S&P down about 20% from peak and some tech heavy funds like TRBCX and TRMCX off more than 30%. That ought to have us at least half way down to ground floor from a broad perspective. Some areas may fall further and some less than that. Does anyone seriously expect the above mentioned funds to fall another 30-35% from here and go all the way down to -70% from peak? From a risk perspective, if you liked those funds 6 months to a year ago you ought to love them today.
I follow the VIX too and am perplexed. But, it’s a measure of expected volatility - not necessarily a valuation measure. Some of those sharp spikes lasted only a few weeks. If you’re a highly skilled market timer you might find a great downdraft to throw everything in. The VIX is interesting - but I wouldn’t bet the ranch on it. I like the things I own which are very broadly diversified into domestic segments as well as internationally. Biggest problem for me is I’m getting low on cash. Have to be very discriminate in picking future acquisitions which I’ll continue to do as opportunities emerge. Would hate to sell PRWCX (down only 12%). However, at some future point moving out of conservative funds and into more aggressive funds would make sense - as I did midway / late in 07-‘09 bear market.
Several people in the media are calling for VIX to be 40+ (without mentioning how much above 40) and then hope that this market will reverse. Do they realize that VIX has been almost there already? VIX was 39 on 1/24/22, 38 on 2/24/22 & 3/8/22, 37 on 5/2/22.
What's that you say? The S&P 500 entered a bear market on Friday? Not so fast. According to Barron's, "At its low on Friday, the S&P 500 index was down 20% from its peak, which would have fulfilled the arbitrary definition of a bear market if it had closed there."
Arbitrary being the operative word. The definition?
Well, it IS a bear market for Nasdaq Comp & R2000 (measured from November 2021) and for crazy speculative stocks (ARKK-like) & the EMs (measured from February 2021). But not YET for the SP500 and no where close yet for the DJIA. I now think that it won't be over until both the SP500 AND DJIA are pulled down too - removing all doubts about this.
Definitions from recent highs - Pull back is down < 10%, correction is down between 10-20%, bear market is down over 20%.
Semantics. Forsyth acknowledges in this week’s Barron’s that the S&P pulled back a bit Friday after touching -20%. But the gist of his column (which I’ll need to reread) is that for all intents and purposes the S&P is in a bear market. I trust that a variance of one-half percent in either direction will not seriously alter one’s perception of relative valuation peak to present.
About reading the VIX tea leaves...VIX rose above 35 on 3/5/20 and continued to rise until the Fed made its announcemnt on 3/15. The stock market then bottomed on 3/23. VIX remained above 35 for about 1 1/2 months -- until 4/27. It has only poked its head briefly above 35 since then. I find it helpful to pay attention to it as a "back of the envelope" tool....
Friends say possible rebounds for few wks spy +2-5% ...lots speculation sp500 ~4150
Rsi sp500 severely low Lots monies managers hedgies will start nibble next few wks Severe feared factors
Like Mr Davfor clearly stated vix could not break 50 days resistances levels
Short squeeze coming
If resistance hold above 21days MA or one two wks..could moon after up to sp500: 4500after 3 4 wks...
He txt me after looking at old data from precious historical crashes/stock evaluations and old trends data
Of course I would argue market sentiments/psychological factors most important and could would not hold rally and could crash to resistance 3700s or lower we go
He thinks thurs 10d ago when finished 3849 was bottom
Lots speculations Stocks look very cheap ..the 20trillions question is can they get cheaper in 4 6 weeks
Some say that it was bond ^MOVE (or, the credit markets freeze) that prompted the Fed to literally move in late March 2020, not the stock VIX. But both had similar patterns. ^MOVE data are now available at Yahoo Finance.
Comments
The Fed’s control is at the short end - but there are ripple effects. It’s been pretty brutal already. When I look at some of TRP’s conservative funds like TRRIX, PRSIX, PRWCX and see them down 10-12% or more this early in the year, that’s a sign of the carnage.
I don’t know. Been slowly ramping up exposure to equities all year. Am aware equities can be a bottomless pit under some unusual circumstances (ie the 1930s). Should the markets crash by 50% or more, we’ll have a lot more to worry about than our pocketbooks. Remember that things are seldom as gloomy or as sunny as they look,
The interesting aspect is the damage in bond land. That’s why folks may not be moving out of equities. Pick your poison. I may attempt to time certain sectors if I think they’re relatively cheap or expensive, but not the broad based market. Think I’ve mentioned a small hold in a bear fund, TAIL, It had a decent week. Has helped dampen volatility. Actually down 1% YTD.
I follow the VIX too and am perplexed. But, it’s a measure of expected volatility - not necessarily a valuation measure. Some of those sharp spikes lasted only a few weeks. If you’re a highly skilled market timer you might find a great downdraft to throw everything in. The VIX is interesting - but I wouldn’t bet the ranch on it. I like the things I own which are very broadly diversified into domestic segments as well as internationally. Biggest problem for me is I’m getting low on cash. Have to be very discriminate in picking future acquisitions which I’ll continue to do as opportunities emerge. Would hate to sell PRWCX (down only 12%). However, at some future point moving out of conservative funds and into more aggressive funds would make sense - as I did midway / late in 07-‘09 bear market.
What's that you say? The S&P 500 entered a bear market on Friday? Not so fast. According to Barron's, "At its low on Friday, the S&P 500 index was down 20% from its peak, which would have fulfilled the arbitrary definition of a bear market if it had closed there."
Arbitrary being the operative word. The definition?
Definitions from recent highs - Pull back is down < 10%, correction is down between 10-20%, bear market is down over 20%.
Rsi sp500 severely low
Lots monies managers hedgies will start nibble next few wks
Severe feared factors
Like Mr Davfor clearly stated vix could not break 50 days resistances levels
Short squeeze coming
If resistance hold above 21days MA or one two wks..could moon after up to sp500: 4500after 3 4 wks...
He txt me after looking at old data from precious historical crashes/stock evaluations and old trends data
Of course I would argue market sentiments/psychological factors most important and could would not hold rally and could crash to resistance 3700s or lower we go
He thinks thurs 10d ago when finished 3849 was bottom
Lots speculations
Stocks look very cheap
..the 20trillions question is can they get cheaper in 4 6 weeks
Maybe start nibbling just a little