Will S&P 500 Retest Recent Low By End of April

[Viking]

Jeff Gundlach on Tuesday said he expected the S&P 500 to test and take out its recent 52 week low of 2,191. This is a high conviction idea for him (although he is not short stocks). The average S&P 500 closed today at 2,460 so this would be a decline of 11% from today's close. I was surprised watching the business shows today at how many 'analysts' were saying the same thing (I counted 5 or 6); they were all high conviction on this 'prediction'. They are saying that what we have seen the past 2 weeks is a classic bear market bounce. It seems like people are getting more bearish.

 

What is everyone on the board thinking? Please provide a short rationale for your vote.

 

My problem is I assume smart people know what is going on and it is factored into stock prices. What I have learned over the years is this is not often the case.

 

If the low is taken out how low could we go? If we have a bear market like 2008 a decline of 50% in the S&P 500 sounds reasonable = 1,700. This would be a decline of 31% from today's close of 2,460. Or have we seen the low for this bear market and we are on our way higher from here.

[Gregmal]

Everything in my short term trading tool box points to the same. The technicals certainly point to another plummet, ie futures limit down Sunday night type shit. All the leading corona names got smoked last half this week and are leading indicators for new market lows IMO.

 

I again contemplated more bearish moves, but outside of shorting a lot of Ford this week, held tight. If nothing else because of memories of all the friends who sold out entirely after the Lehman filing, and both looked and felt great for a quarter or two, but never got back in and missed the turn. Maybe it’s my approach, but if you can’t hold tight after 25% down for the market, and more like 40-50% down for many healthy names, then what’s the point?

[SHDL]

I mostly agree with the short term bears. My reasoning is that since nobody really knows how bad fundamentals are going to get, the market will trade for a while purely based on emotions, technicals, historical stats, etc — which all point to a further drop of say 30-50%.

[wescobrk]

I'm about 40% long and 60% short.

I think sometime this month will see 10% or greater. Maybe it will just be intraday and not close below low.

If we don't have a therapeutic by fall then very well could see greater than 50% from peak late summer as virus will get bad again in the fall. Can you imagine how people will react with another shutdown of the economy if we re open in late May to close again in the fall?

[randomep]

Just a point of reference.  The SP500 TR (that is including dividends)  dropped by 55% from the high of July'07 to Mar'09. The same drop would mean that SP500 would bottom at about 1520.  That is complete capitulation.  That is the absolute bottom in my view, although I don't know if this cycle will be so low. But I base my plans on this worse case.  In this worst case, I will have no money left add to long positions, except what I need to pay bills.

 

 

[perulv]

I voted "yes, low conviction". On the one hand, I also think that if "everybody" thinks the market will go down, this is priced in an it will not.  On the other hand, I was in the "the market is overpriced" camp, and a 20-30% drop would simply make it more reasonably priced to how the world looked in January. Another 20-30% drop to adjust for how the world looks today, including plenty of fear and almost literally blood in the streets, does not seem that unlikely to me.

[Uccmal]

Yes, was on the fence on my degree of conviction, but voted "high" for your stats.  I dont think the degree of damage being caused to the economy is priced in at all. The markets are not always a leading indicator.  In this case they are lagging.

 

People are going to need to raise money for living.  They will start to tap into investments and alot of it is in ETFs and high flying tech stocks.  We aint seen nothing yet.  Retailers (except,grocers), and restaurants (chain, fast food) are going to get smacked still.  Anyone bought shoes, or clothes in the last 2 weeks? 

 

Examples:  Sbux is closed, QSR is only drive through, MCD, etc the same.  My wife and many others I know are not buying takeout due to fear, not restrictions.  HD, Lowes, Canadian Tire, are being told curbside only - anyone else who does renovations knows that you need to see and look at purchases alot of the time.  And spring is real busy for these guys.  We (at home) are already forgetting about spring purchases for the garden for this year. 

 

I am more than fully invested as always.  I hold June expiry puts on a number of liquid names (FB, Goog, HD, Lowes, Mcd, QSR, KO, V, MA, PYPL, BAM).  Some of these I hold long also.  If they expire worthless that means things have held up, but I do not think that will be the case.  Most of the time I am more bullish than bearish. m

 

We had this coming for years, and Covid 19 is sure aggravating it.  My take.

[stahleyp]

Buffett talked about how markets work on 17 years cycles (though his same size was pretty small). I wonder if we'll see early 2000s numbers as the low.

 

Gundlach made a great point about sacrificing and Biden saying people shouldn't have to "sacrifice anything." We are so entitled.

 

https://www.realclearpolitics.com/video/2020/03/27/biden_at_cnn_coronavirus_town_hall_you_should_not_have_to_sacrifice_anything.html

[chrispy]

The previous low occured when everyone was figuring out how the US would respond and if there would be stimulus.

 

Now, everyone in the WORLD knows the situation and numbers. Singapore is shut down, we should wear masks in the US, etc. Therefore, since this is all widely available info it should be priced in. US government is doing everything at a remarkable pace and US banks were well capitalized.

 

It can go lower based on today's situation. If this goes on for a long time it could go very low. The entire world is trying to solve this problem that for most people has unfortunately only been a "problem" for about 4-6 weeks.

[no_free_lunch]

I agree with the poster who said markers don't seem to incorporate public information quickly enough. For that reason I'm low conviction yes.

 

I was 80 pct cash going in but then I've been that way for years. I didn't prepare for this and yet I've been debating this thing on Rona thread since January. I knew we were going to get whacked by the virus but with EMT I assumed the market did too.  Apparently the market took a deep breath of the cool but skunky air from up north (and inhaled too) and felt so good we collectively decided to let it ride.  Just frustrating that I saw it coming, I don't mind being down, I actually like it given age and earning power but the opp cost was huge.

 

All I can do is learn.  I am watching this virus internationally and trying to extrapolate.  I don't think there is any reason to speculate as it will follow predictable patterns. What I saw before in China scared me and what I see now scares me as a short.  With bonds paying nothing and fear driving the market we could get some nasty short squeeze.  It will be painful first I suspect, perhaps, for a month or two but after that we will adapt and mitigate Mr virus and it will be off to the races us my guess.

[KJP]

Buffett talked about how markets work on 17 years cycles (though his same size was pretty small). I wonder if we'll see early 2000s numbers as the low.

 

Gundlach made a great point about sacrificing and Biden saying people shouldn't have to "sacrifice anything." We are so entitled.

 

https://www.realclearpolitics.com/video/2020/03/27/biden_at_cnn_coronavirus_town_hall_you_should_not_have_to_sacrifice_anything.html

 

To be fair, the questioner was asking which of the following should her family give up:  food, shelter or healthcare?  So, in context, Biden appears to have said that we're not going to let families starve, live in Hoovervilles or lose all medical care.  Of course, Biden being Biden, he didn't articulate that as clearly as he could have. 

[Viking]

My vote was low conviction ‘yes’. I am thinking about the Buffett quote: “If you've been playing poker for half an hour and you still don't know who the patsy is, you're the patsy.” When i was watching the business shows yesterday i was starting to feel like the patsy.

 

My read is the terrible economic news that is coming is not baked into stock prices today. Likely because most people can’t project in their minds what is happening; they have never experienced anything like this before so how could they? So they will react only when they ‘see’ and ‘feel’ the impact. Same with analysts and earnings estimates; downgrades will be slow and still to optomistic.

 

I also think there is a small (but growing) chance the economic outcome the next 12-18 months could be worse than 2008. The epicenters will be different. 2008 was housing. This one is very different; massive, rapid surge in unemployment where people and businesses had no time to prepare (i.e. build savings). Travel/hospitality is toast: airlines, hotels, restaurants, cruise etc. Oil is toast. A massive number of small businesses could also be toast. In Canada, we have a housing bubble that could be about ready to pop. And what do older people or those with underlying conditions do for the next 12-18 months until a vaccine is available? Makes sense their economic activity will stay low (with limited interaction with others). This is a significant portion of the population. And what to think about what the Fed is doing to its balance sheet (massive expansion) and the amount of debt governments are taking on? Do we get a government debt crisis with Italy leading the way? This could easily morph into a severe economic contraction in the next year. But it will take time to play out as there is still much we do not know.

 

My current plan  is to slowly scale in. Today i am about 35% invested and 65% cash. For every 5% decline in the market put another 10% of cash to work. So if we see markets fall 35% from highs be 60-65% invested. If markets fall 50% be 90-100% invested. I am being very cautious because i do not have a day job and i like my current life style. Stick with super high quality. Take advantage of volatility by actively trading  10% of portfolio (clip short term 4-6% gains... rinse and repeat).

[stahleyp]

Buffett talked about how markets work on 17 years cycles (though his same size was pretty small). I wonder if we'll see early 2000s numbers as the low.

 

Gundlach made a great point about sacrificing and Biden saying people shouldn't have to "sacrifice anything." We are so entitled.

 

https://www.realclearpolitics.com/video/2020/03/27/biden_at_cnn_coronavirus_town_hall_you_should_not_have_to_sacrifice_anything.html

 

To be fair, the questioner was asking which of the following should her family give up:  food, shelter or healthcare?  So, in context, Biden appears to have said that we're not going to let families starve, live in Hoovervilles or lose all medical care.  Of course, Biden being Biden, he didn't articulate that as clearly as he could have.

 

I would imagine they wouldn't have to "sacrifice" any of those things if they would have prepared ahead of time.

[randomep]

 

I was 80 pct cash going in but then I've been that way for years.

 

What the heck? I am interested to know how you can be that disciplined? How many years? Are you an investor in normal times, and where do you keep the cash?

[Viking]

 

I was 80 pct cash going in but then I've been that way for years.

 

What the heck? I am interested to know how you can be that disciplined? How many years? Are you an investor in normal times, and where do you keep the cash?

 

How you invest will be informed by a number of things including net worth, risk tolerance, age, employment status and investment objectives. Pretty complex.

- net worth: big or small? Diversified (savings, investments, real estate, small business) or more focussed? Living in Canada, we have had a housing bubble for the past 20 years. My current net worth includes significant paper gains in the value of my house. Should the housing bubble pop a 20% or even 30% fall in prices is not out of the question. As a result of the risk of a housing contraction here i am being a little more cautious with my equity portfolio.

- risk tolerance: portfolio needs to be constructed to allow one to ‘sleep well at night’

- age: generally speaking the younger the more risk/equities

- employment status: employed or retired? If employed, is the job secure in current environment?

- investment objectives: total return or preservation of capital

 

In my case, i learned a lot riding the 2018 20% correction. For the past 18 months i have been very cautious (i called it being ‘a fraidy cat investor’) and was in 100% cash for extended times earning 1.6%. And i was good with that. Because i have enough saved to live a good life (but if my portfolio fell 20-30% that might not be the case). Preservation of capital was and is far more important to me than total return. I learned this back in Dec 2018 and Jan 2019.

[Gregmal]

 

I was 80 pct cash going in but then I've been that way for years.

 

What the heck? I am interested to know how you can be that disciplined? How many years? Are you an investor in normal times, and where do you keep the cash?

 

How you invest will be informed by a number of things including net worth, risk tolerance, age, employment status and investment objectives. Pretty complex.

- net worth: big or small? Diversified (savings, investments, real estate, small business) or more focussed? Living in Canada, we have had a housing bubble for the past 20 years. My current net worth includes significant paper gains in the value of my house. Should the housing bubble pop a 20% or even 30% fall in prices is not out of the question. As a result of the risk of a housing contraction here i am being a little more cautious with my equity portfolio.

- risk tolerance: portfolio needs to be constructed to allow one to ‘sleep well at night’

- age: generally speaking the younger the more risk/equities

- employment status: employed or retired? If employed, is the job secure in current environment?

- investment objectives: total return or preservation of capital

 

In my case, i learned a lot riding the 2018 20% correction. For the past 18 months i have been very cautious (i called it being ‘a fraidy cat investor’) and was in 100% cash for extended times earning 1.6%. And i was good with that. Because i have enough saved to live a good life (but if my portfolio fell 20-30% that might not be the case). Preservation of capital was and is far more important to me than total return. I learned this back in Dec 2018 and Jan 2019.

 

Easier explanation? Are you a Warren Buffet type or Elon Musk/Masayoshi Son?

 

Thats definitely a helpful perspective though. Met a bunch like this, including my father. $5M is no different than $500M to these people. They have what they need to live the life they desire with the freedoms they wish, protecting that is more meaningful than getting "richer". There should be classes taught regarding this, unfortunately there arent even classes on how to manage a checking account until university in most places.

[Viking]

 

I was 80 pct cash going in but then I've been that way for years.

 

What the heck? I am interested to know how you can be that disciplined? How many years? Are you an investor in normal times, and where do you keep the cash?

 

How you invest will be informed by a number of things including net worth, risk tolerance, age, employment status and investment objectives. Pretty complex.

- net worth: big or small? Diversified (savings, investments, real estate, small business) or more focussed? Living in Canada, we have had a housing bubble for the past 20 years. My current net worth includes significant paper gains in the value of my house. Should the housing bubble pop a 20% or even 30% fall in prices is not out of the question. As a result of the risk of a housing contraction here i am being a little more cautious with my equity portfolio.

- risk tolerance: portfolio needs to be constructed to allow one to ‘sleep well at night’

- age: generally speaking the younger the more risk/equities

- employment status: employed or retired? If employed, is the job secure in current environment?

- investment objectives: total return or preservation of capital

 

In my case, i learned a lot riding the 2018 20% correction. For the past 18 months i have been very cautious (i called it being ‘a fraidy cat investor’) and was in 100% cash for extended times earning 1.6%. And i was good with that. Because i have enough saved to live a good life (but if my portfolio fell 20-30% that might not be the case). Preservation of capital was and is far more important to me than total return. I learned this back in Dec 2018 and Jan 2019.

 

Easier explanation? Are you a Warren Buffet type or Elon Musk/Masayoshi Son?

 

Thats definitely a helpful perspective though. Met a bunch like this, including my father. $5M is no different than $500M to these people. They have what they need to live the life they desire with the freedoms they wish, protecting that is more meaningful than getting "richer". There should be classes taught regarding this, unfortunately there arent even classes on how to manage a checking account until university in most places.

 

This also explains why everyone on this board needs to heavily filter what they read from other posters. Everyone’s situation is so different and changing over time. I know, stating the obvious. Lots of good discussion and information. Important to be rational and am independent thinker :-)

[vinod1]

Purely anecdotally, almost all my friends are asking me if it is time to load up. The rationale is something along the lines of $2 trillion in stimulus and all the things Fed is doing, what else can S&P 500 do other than go up?

 

So I am getting the feeling that more drop is likely.

 

There is a short term over-reaction and long term under-reaction theory which I think seems to hold a lot of time. What it means is for short term events, the market over-reacts. Say a CEO quits or dies, the stock over-reacts and falls a lot in the short term, but gradually recovers.

 

On the other hand, if something really significant happens, the market does not fully price in its full impact immediately. Rather, it takes a while for the information to get incorporated. Say things like Amazon, disclosing AWS financials and the opportunity it presents. It might bump it up but not to the full extent that it deserved.

 

Covid-19 has the additional thing that it has little parallel to compare to. So it might take sometime to adjust.

 

My vote is low-conviction as in (60-40) odds, that we are likely to see a further drop.

 

Vinod

[bskptkl]

I voted yes - low conviction.

 

But I have put a lot of cash in the market already - more than 50% of my dry powder.

It is very hard to watch the market tick by tick and not get confused. Fear and greed are having a noisy conversation in my head. It's exhausting.

I think it is a stock picker's market and it is prudent to make judicious bets now as opposed to waiting because you think the SP will go lower.

I think various companies stocks have hit their lows, other's not so much.

For instance - does anybody think LAACZ will trade close to $1025 again?

 

What are we all going to say 5 years from now about that time the whole world stopped working because of Covid? Do we think there will be long term structural damage to the whole economy? I don't think so. I think it will be roughly business as usual minus many over leveraged companies. With that perspective, I don't think it will matter much that I bought BRKB at $200 (I did) instead of bottom ticking it at a future $150 or so. I made by BRKB bet, price wasn't great, don't feel like averaging down, don't want that bet to be too large relative to portfolio. I've made other bets, don't want to average down, etc. Spread the bets around and try to be patient when/if they recover. I feel schizophrenic though.

 

[Spekulatius]

I voted yes, low conviction. I believe the market will base in the 1600-2000 point range for the SP500. I do believe the economy has taken on a lot of damage and will be take more. In 5 years we will be over it, but will still feel the consequences. I feel this is worse than the GFC crisis, but time will tell. I could easily see scenarios where in 5 years we just reach the same GNP level that we were supposed to have in 2020 before this happened. I can also see pressure on profit margins from insourcing as well as higher taxes, especially for corporations.

 

I feel like a V recovery is priced in, but any more dire scenario certainly not.

[LC]

I also voted yes LC (low conviction) but I think the drop and recovery will be faster than 5 years or so.

 

Compared to the GFC - the economy needed structural changes: First in the mortgage business; but second (and more far reaching) in areas of counterparty risk, capital requirements, and so on.

 

Let's say by the time human society turns the corner on COVID the S&P is down at 1600. What structural changes are really needed? Perhaps we may build more strategic facilities for PPE to ramp-up in another emergency, but otherwise I do not really think there will be much fundamental changes to society and in particular the economy.

 

I just don't see this being a 5 year issue, but I could be wrong (and am playing the game conservatively in case I am).

[Kaegi2011]

I have a decent number of friends in the HF/PE side and the consensus seems to be that it'll be worse before it gets better.  Personally I don't see how we don't have a rolling containment strategy for the rest of the year, absent a miracle vaccine or warmer weather really impacting the disease. 

 

Having said that, noting how one way the sentiment seems to be among the people here along with my group of friends, is short/medium term risk more about the rally continuing rather than more downside to come? 

 

I know this is an investment forum largely geared to value and long term holders, and opinion above is perhaps too short termed for some, so I would just like to point out tha tthe topic was for where the S&P was headed by the end of the month.  :)

[wescobrk]

It won't be tomorrow.

Dow Futures up over 700 points.

[kab60]

The sentiment on this forum seems almost like a contrarian indicator - but perhaps that's not isolated to this forum. While the indexes might still be expensive, a lot of Companies are priced as if they're going bankrupt despite the fact that they'll get through this - and the good companies will probably emerge even stronger as they usually do through a crisis. It's as if people take recent events and extrapolate them far into the future. I suppose that is what most forecasters do and why most are wrong as well.

[Gregmal]

I stopped by QuickCheck to pick up a pack of Marlboros before some night fishing. The guy at the register, a friend/acquistaince/I see him 6 nights a week during fishing season, told me, dont worry, in 2-3 weeks the market will bottom. So either its already bottomed(aka Ackman and Tepper read this right) or we've got a long way to go(everyone here is warranted in their gloominess). We will see I suppose.