Facts & Figures

Published On: March 11, 2020

Written by: Ben Atwater and Matt Malick

As the market works to price-in the ultimate costs of coronavirus, we remain deeply concerned that volatility may continue in earnest.  That said, as we’ve repeatedly reminded you throughout the current crisis, it is simply impossible to time markets.  Below are some facts and figures from BlackRock, the world’s largest asset manager, as well as some of our reflections on these facts and figures. 

• The week of February 23^rd was the 4^th worst week for stocks since 1950.  In the year following the 20 worst weeks since 1950, U.S. stocks were up 18%, on average.  Stock market corrections tend to spring back, however, if the market does fall into a bear market (a 20% or greater drop on a closing basis from the highs) it often takes several years to fully recover.
• U.S. stocks remain in a bull market, which began 11 years ago in March of 2009.  For now, we must give the benefit of the doubt to the bull market, but also acknowledge the chances of a recession and a bear market are higher than at any other time during the last 11 years. 
• U.S. stock valuations have never been this high (Shiller P/E – also known as the Cyclically Adjusted Price to Earnings Ratio – is greater than 28) when interest rates are this low (below 2%).  High valuations are a significant issue.  There is always a tipping point for stock and bond prices.  Although the economy was strong going into this crisis, stocks were also priced for perfection.  Another long-term valuation measure in addition to the Shiller P/E is total U.S. market capitalization to gross domestic product, which hit 160% before this pullback, higher than the 2000 dot.com bubble ratio of 140%.
• U.S. interest rates are at historic lows (10 and 30-year Treasuries).  Of the best 20 months for bond funds throughout history, 10 have taken place in the last 12 months.  Bonds are extremely expensive (lower rates mean higher prices), therefore, our strategy is to use bond maturities for liquidity needs and to build cash positions for future investment into equity markets. 
• Over the last 20 years (through 2019), 24 of the 25 worst trading days were within one month of one of the 25 best trading days.  In other words, selling on big declines almost guarantees missing the rebound – you can’t time the market, it’s a proven fact. 

We feel a responsibility to communicate (maybe overcommunicate?) with you through these major market moves, especially with the heightened threat to not only our health, but to our economy and markets.  Please don’t hesitate to reach out to us via phone or email to discuss your situation in more detail.  We are here monitoring markets and reviewing client accounts and available to chat with you.  As always, thank you for working with us.