A Little Stock Market Digestion
Don't shoot the messenger, please.
The market for long-term investors needed a rest. A reset.
Consider the idea that we’re visiting a needed rest stop.
The buffet line has been busy since the summer swoon lows (see fear and greed chart below) just as we had noted a week or so ago, so a little digestion is warranted no matter the excuse of the day.
As promised, a new monster has taken centre stage and it’s worse than the Trade War, the political vitriol, the feared earnings slowdown, the alleged "time-bomb" of student loans, and all the Democratic Party’s selling points as the race to the Presidential election speeds up.
It’s the Coronavirus.
Sadly, many have perished from this - though we are about as certain about the mortality data as any financial / economic data coming out of China’s state-controlled news.
We try here to help put things into perspective.
The virus that’s currently getting all the media attention is a new one. And any such infection or sickness is always terrible when it has the ability to take lives.
Coronavirus has also manged to ramp up its visibility far more quickly than any previous, similar panic like SARS, Bird Flu, etc.
But let’s look at this in relative terms…
A look at CDC snapshots of what a normal average regular old flu season in the US since 2010 looks like tells us this:
Now, there’s no intention here towards morbidity, but rather to calm nerves during what is sure to be a sensationalized week of virus coverage.
The sad part is that while the number of cases and deaths and the speed of announcement/process of media hype unfolds around the Coronavirus, it pales by comparison to the average range of deaths and cases here in the US of a normal flu season.
- Average Illnesses Reported for Flu: 9MM to 45MM (MM = million)
- Average hospitalizations for Flu: 140,000 to 810,000
- Number of Deaths Annually: 12,000 to 61,000*
(This is somewhere between 125 and 600 times higher than the current death count for Coronavirus cases.)
We can be confident that the topic will likely also play into many earnings report coverage pieces as well that are working hard to dish out fears with these dreaded themes:
"Yes, Jack, it does appear that XYZ is reporting excellent progress and earnings growth - but that was before the Coronavirus wasn't it?"
Shame on them.
As always during windows such as this it will be up to us to remain on track and look beyond the noise and stay focused instead on the long-term pathway ahead.
And That Fear Gauge We Noted?
Well, we’ll see what the AAII data tells us later this week (Thursday early morning) but I have included that same CNN Fear and Greed Index we have used often before at important teaching points.
The two snapshots above are the same.
The second provides you a perspective on how to look at the data.
Notice at "A", during the mid-summer "swoon" the Fear and Greed Index hit 20 or so - a solid level of fear.
From that mid-summer low, the Dow Jones then spent the last 6 months and one week moving up roughly 4,500 points to "B" last week.
As the week ended "bathed in red ink with current futures down another 400 points or so (a little over 1% - and even worse on tech and growth) that nearly vertical move downward (green arrow) falling away from "B" has covered about 850 points (including the 400-points in red ink pre-market on the Dow Jones at this writing).
The Point to Those Parameters?
- Point A to Point B (red arrow) is roughly 80 points on the index's scale.
- Driving that 80-point change was a rise of 4,500 Dow Jones points and 6 months of time was used.
- Point B to now (green arrow) has so far taken back nearly HALF of that 80-point rise on the Index since last summer.
- Driving that was an 850-point pullback so far (some not even officially on the books yet) and it took 3 trading sessions.
The next time someone tries to tell you that this market is too bullish and is reaching "bubble" levels, make sure you are not drinking anything.
You might accidentally choke on it.