March 2nd, 2016
Market Recovery—For How Long?
On March 1st, the S&P 500 was up over 2%, the highest one-day return in a month. Analysts attribute the rise to a variety of economic news that suggests the American economy is not, after all, plunging into recession. The buoyant mood among investors may not last, but for many, it is a welcome sign that things may not be as gloomy as they seemed just a month ago.
In fact, this year U.S. equity markets were down to a negative mid teen range bottoming on February 11th, despite widespread predictions of a 20% bear market. Since then, U.S. equities are still down for the year but in the low to mid-single digit range. Furthermore, thanks to higher oil prices combined with lower valuations, emerging markets are starting to show better results.
In the U.S., the good economic news involves construction spending, which reached its highest level since 2007. In addition, new orders and inventories stabilized in the manufacturing sector, after experiencing downturns in the last quarter of 2015.
Neither we nor any of the pundits you see on the financial news have any idea whether that long-awaited 20% decline will materialize, or if the markets will continue to recover and we’ll all look back on February 11th prices as a great time to buy. Nevertheless, it is worth reflecting on how swift this latest rally has been at a time when it seemed that all the news pointed to more pain and decline. Anyone who believed the pundits, and retreated to the sidelines after the January selloff, is now sitting on losses and wondering whether to jump in now and hope the gains continue, or wait and hope for another downturn, and risk losing even more ground if this turns out to be a long-term rally.
In the short term, predicting the next turn in the market roller coaster is a fool’s game, but long-term, the markets have delivered remarkable appreciation. As always, if you have any questions, please do not hesitate to contact us.