Tornado Touch-Down in the Stock Market

We typically send this “Monthly Market Brief” to our clients, only – but given the circumstances we’re living in, we decided to make an exception this month and share it with the public.

 

The 2nd-longest bull market in United States history came to an end last month after a whopping 11 years without a single drop of -20% or more.  Incredible…

 

Those of you who have been clients long enough know that I often use the analogy of “Tornado Sirens” to explain my sell signals (when it’s time to get out of the stock market).  If you’ve been a client for longer than a year, then you also know how annoyingly frustrating this 11-year bull market has been!

 

Why has it been frustrating?  Because there has never been a stretch of time in history that has gone by, where the market has gone up for so long, with so many tornado sirens, without a single tornado touching down!  Needless to say, the sirens did go off a few weeks ago and it was time to take our hard-earned retirement savings and head to the basement.

 

During THE longest uptrend in market history – from Black Monday in October of 1987 until the Dot-com bubble burst in 2000 – there were only five “tornado sirens” that went off without a subsequent tornado.  One in 1990, two quick ones in 1994, another quick one in 1998, and then the siren that preceded the tornado that wiped out -47% of the S&P500’s value between 2000-2.  But still, that’s it… only 4-out-of-14 years (or one every 2.8 years, on average)!

 

If we fast forward and take a look at this past 20 years, you can see a much different picture:

 

  • There was only one, extremely short “tornado siren” (in 2006) between the bottom of the 2000-02 crash and the peak of the market in 2007.
  • However, between the bottom of the 2007-09 market crash resulting from the mortgage crisis and today, there were seven “tornado sirens” in only 11 years!
  • That’s an average of one every 18 months or so!

 

SPX-w-Tornados-and-Sirens Tornado Touch-Down in the Stock Market

 

What this means is that it’s been the toughest stretch of time in history to manage investments using a tactical, proactive, trend-following strategy.  But that drought has now come to an end.

 

As we enter the 2nd quarter, May 1st begins the seasonally weakest months of the year for the stock market.  Combine the law of averages with the fact that we’ll surely be headed into a recession, and it’s hard to paint a rosy picture.

 

As such, I’ve been focused on waiting for volatility to calm, for mutual fund managers, pensions, and institutional funds to finish their quarterly “rebalancing” (which I’ll discuss in more detail in the Quarterly Scouting Report, which we’ll be sending out on Friday), and to continue to analyze the bond/fixed income and commodities markets for potential bright spots as we make our way through the COVID-19 aftermath.

 

If you have any questions about this brief market update, or anything else for that matter, please reach out to me, personally, at Adam@LibertasWealth.com.

 

Please feel free to share this with your family, friends, and colleagues if you think they’ll find it interesting as well.

 

As always, without you, we wouldn’t exist – so thank you for your continued trust!

 

Adam

 

Categories: Adam Koos, CFP®, CMT®, Market Commentary

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