Welcome to our active management update on the market
Today I want to share some important market facts that I believe we should be considering at this time.
First, all markets are in an irrational state as they deal with liquidity and economic, political, and health-care issues. Historically, these environments tend to be short-lived before regulators step in (as they are now) and market participation reverts to a more normal supply/demand environment among asset classes.
The following monthly basis graph of the S&P 500 shows the trend line (A) that has been broken and the significant support zone (B and C) that was tested yesterday (March 18). The trend line A could be revalidated if a significant rally gets the S&P 500 back above the level of the trend line by the end of the month.
Second, it is worth noting that the stock market is oversold from a monthly perspective for the first time since late 2018.
Third, while the precautions we are taking to stem the spread of the coronavirus continue to affect the global economy, the U.S. dollar continues to gain strength due to its status as a global economic safe haven (see the following graph).
Finally, remember that in times of crisis, correlations tend to converge. This is illustrated in the following three-year daily basis graph.
Notice that as the crisis escalates, stocks, bonds, and gold decline in unison. We have seen this condition in the markets many times before, and it tends to be temporary. Note that convergence of correlations does not detract from the importance of strategic diversification across asset classes, strategies, and time frames.
That’s all for today. Stay safe, remain objective, and remember the importance of sticking to your long-term investment plan.