The Week That Was in the Markets
We typically don’t inundate our clients with “Bulletins” commenting on the markets. Since we’re long-term investors, comments about short-term movements in the markets usually don’t add any valuable perspective. These past two weeks, however, we did send 2 separate bulletins out. One addressed the Coronavirus and it's potential personal impact, along with a simple overview of its potential impact on the economy and the markets. That impact was felt this past week in grand fashion in the markets. As for the economy, we've gotten rumbles of factory shut-downs and some initial impact on the supply chain. We don't know if the supply chain disruptions will continue and/or intensify. We'll likely find that out in the coming weeks.
Of course, even in less-eventful times, we do look at market action daily in our shop. We do that to remain engaged with that mechanism that moves prices up and down on a daily basis. We do our best to understand why the up or down happens. Sometimes we get it; sometimes we're a bit puzzled. Usually, even when we're pretty sure we understand exactly what's going on, we're not driven to make any trades - at least no when what's happening is short-term in nature.
On the other hand, we do look at short-term movements from a longer-term perspective. So, for example, our own technical analysis combined with a recommendation from one of our "Brain Trust" caused us to trim our Gold and Mining Share positions on Monday. We usually don't trim unless there's been some inordinate gains in an item. Such gains have, on rare occasions, caused us to take profits. But there needs to be another factor involved for us to execute trimming trades. This time it was the conclusion that gains in these positions had gone too far too fast. Charts showed an extraordinary high pole, with a gap on Monday. Simultaneously, our Brain Trust member advised cutting back. The kicker was the gap up on Monday, even as stocks plunged. We figured if we're going to trim, now's the time, as we could assure capturing not only recent extreme gains, but this gap-up jolt as well. And so we cut positions around 40%. The positions sold off dramatically by week's end. Sometimes you get things right.
Back to our bulletins. Given that this past week was a doozy, I thought a few comments were appropriate. So I wrote a second bulletin that updated a Coronvirus screed of the week before, as well as brief section on the markets. Here's what we sent out to clients:
In emotionally charged markets - which this one has certainly been - it’s important to keep your head. One way to do so is to place events in perspective. First we note the following:
- Thursday was the largest point decline in the Dow - ever.
- The overall stock market decline was the fastest drop of 10%+ from an all-time high.
Such are the makings of emotionally charged markets.
With that in mind, here’s some additional perspective:
Until Thursday, balances of all our client accounts remained above year-end (12/31) 2019. Thursday drove them lower. Today more so. While not every client account is the same, on average losses were roughly 2.5% from year-end 2019. That follows a year where average gains were 12%.
The point here isn’t to say “Don’t worry,” or “Everything’s fine.” I find that In emotionally charged markets, pithy assurances aren’t all that effective or helpful. However, looking beyond the few days of extreme price movements can lend some perspective.
We could go on with additional analysis, but we’ll stop here. For now, we’ll simply note that, while stocks were down over 700 points today at one point, the day ended with a sharp rally, leaving the Dow down “only” 357 points. This sort of end-of-day/end-of week rally after substantial losses historically presages a rally the following week. We’re not predicting anything here; just pointing out what history teaches us.
If you want to discuss any of this further, or delve into the specifics of your account(s), please let us know.
These are trying times, to say the least. It’s important that we keep our heads and view events with some reasonable perspective. That’s all we’re trying to do here. With that, I hope your weekend brings you some respite and peace.
I don't know if anyone found this helpful, but it was just sent out yesterday. Typically, clients don't call in a panic when markets move, but these losses were rather severe, so I thought some attempt at an explanation, and providing some perspective might be beneficial.
Notice we didn't explain our trimming of Gold and Mining shares. Nor did we opine on treasury yields dropping to all-time lows as money poured into these so-called "safe-haven" assets. You can only say so much, especially in a missive that's combining comments bout the virus that's got so many of us on edge.
On thing we didn't comment on, that might be significant as we look forward to next week: Friday stock market action. We did note that stocks rallied. But we didn't explain that the sharp losses earlier in the day could very well have been more than just spill-over from previous days' action. Friday was the last day of the month. Typically margin calls go out the last day of the month. Given the breath-taking speed and depth of the losses, we suspect leveraged players like hedge funds took losses requiring them to pony up cash in heapfuls on Friday. To get that cash they have to sell securities. And so they would typically sell what's liquid. That includes stocks and gold and mining shares. All dropped like a stone. When stocks rallied, maybe it was buyers - those who weren't dealing with leveraged losses - stepping in with the thought that a bottom had been reached.
What about Gold and Mining Shares? They didn't rally. Again, our longer-term trend analysis had indicated they were due for correction. And having been sold on Friday, perhaps there's a bottom still waiting somewhere "out there." It didn't seem like traders thought it had been reached on Friday.
So there it is, a week to remember. Or maybe, for some, a week to forget.
Of course, even in less-eventful times, we do look at market action daily in our shop. We do that to remain engaged with that mechanism that moves prices up and down on a daily basis. We do our best to understand why the up or down happens. Sometimes we get it; sometimes we're a bit puzzled. Usually, even when we're pretty sure we understand exactly what's going on, we're not driven to make any trades - at least no when what's happening is short-term in nature.
On the other hand, we do look at short-term movements from a longer-term perspective. So, for example, our own technical analysis combined with a recommendation from one of our "Brain Trust" caused us to trim our Gold and Mining Share positions on Monday. We usually don't trim unless there's been some inordinate gains in an item. Such gains have, on rare occasions, caused us to take profits. But there needs to be another factor involved for us to execute trimming trades. This time it was the conclusion that gains in these positions had gone too far too fast. Charts showed an extraordinary high pole, with a gap on Monday. Simultaneously, our Brain Trust member advised cutting back. The kicker was the gap up on Monday, even as stocks plunged. We figured if we're going to trim, now's the time, as we could assure capturing not only recent extreme gains, but this gap-up jolt as well. And so we cut positions around 40%. The positions sold off dramatically by week's end. Sometimes you get things right.
Back to our bulletins. Given that this past week was a doozy, I thought a few comments were appropriate. So I wrote a second bulletin that updated a Coronvirus screed of the week before, as well as brief section on the markets. Here's what we sent out to clients:
In emotionally charged markets - which this one has certainly been - it’s important to keep your head. One way to do so is to place events in perspective. First we note the following:
- Thursday was the largest point decline in the Dow - ever.
- The overall stock market decline was the fastest drop of 10%+ from an all-time high.
Such are the makings of emotionally charged markets.
With that in mind, here’s some additional perspective:
Until Thursday, balances of all our client accounts remained above year-end (12/31) 2019. Thursday drove them lower. Today more so. While not every client account is the same, on average losses were roughly 2.5% from year-end 2019. That follows a year where average gains were 12%.
The point here isn’t to say “Don’t worry,” or “Everything’s fine.” I find that In emotionally charged markets, pithy assurances aren’t all that effective or helpful. However, looking beyond the few days of extreme price movements can lend some perspective.
We could go on with additional analysis, but we’ll stop here. For now, we’ll simply note that, while stocks were down over 700 points today at one point, the day ended with a sharp rally, leaving the Dow down “only” 357 points. This sort of end-of-day/end-of week rally after substantial losses historically presages a rally the following week. We’re not predicting anything here; just pointing out what history teaches us.
If you want to discuss any of this further, or delve into the specifics of your account(s), please let us know.
These are trying times, to say the least. It’s important that we keep our heads and view events with some reasonable perspective. That’s all we’re trying to do here. With that, I hope your weekend brings you some respite and peace.
I don't know if anyone found this helpful, but it was just sent out yesterday. Typically, clients don't call in a panic when markets move, but these losses were rather severe, so I thought some attempt at an explanation, and providing some perspective might be beneficial.
Notice we didn't explain our trimming of Gold and Mining shares. Nor did we opine on treasury yields dropping to all-time lows as money poured into these so-called "safe-haven" assets. You can only say so much, especially in a missive that's combining comments bout the virus that's got so many of us on edge.
On thing we didn't comment on, that might be significant as we look forward to next week: Friday stock market action. We did note that stocks rallied. But we didn't explain that the sharp losses earlier in the day could very well have been more than just spill-over from previous days' action. Friday was the last day of the month. Typically margin calls go out the last day of the month. Given the breath-taking speed and depth of the losses, we suspect leveraged players like hedge funds took losses requiring them to pony up cash in heapfuls on Friday. To get that cash they have to sell securities. And so they would typically sell what's liquid. That includes stocks and gold and mining shares. All dropped like a stone. When stocks rallied, maybe it was buyers - those who weren't dealing with leveraged losses - stepping in with the thought that a bottom had been reached.
What about Gold and Mining Shares? They didn't rally. Again, our longer-term trend analysis had indicated they were due for correction. And having been sold on Friday, perhaps there's a bottom still waiting somewhere "out there." It didn't seem like traders thought it had been reached on Friday.
So there it is, a week to remember. Or maybe, for some, a week to forget.
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