Positive News

There’s a bit of positive market news today that I wanted to pass along. I routinely monitor the Asian markets opening as well as Dow Futures each evening. This gives me a bit of insight on how the U.S. markets will perform the following day. During the pandemic crisis, those indicators have reliably predicted the direction of the DJIA and S&P 500. 

Yesterday Asian markets were up around 3% at the time the U.S. futures markets opened. Unfortunately, those markets started to decline once futures trading began here in the states. The U.S. futures market opened roughly an hour after Congress was unable to agree upon a stimulus package that focused on individuals. 

The amount of futures sales triggered the ‘limit down’ rule, which closed the futures market down within five minutes of opening (the quickest close in history). Australian markets began to sharply decline afterwards, causing other markets to fall as well. Only the Japanese Nikkei 225 finished the trading session up. 

You may be asking why I consider this good news. First, it offers a bit of hope that China and South Korea’s containment of Coronavirus is having a positive impact on production. The second reason is because, while the U.S. markets finished lower, the steep declines I had previously noted over the last few weeks did not materialize today. 

I have been observing a correlation between futures, the Asian markets, and subsequent trading sessions during the crisis. I’ve noted that a decline of 600-700 points on the futures market had translated to a roughly 1,500 to 2,000-point DJIA decline when Asian markets closed negative. The DJIA closed down again today, but by only -582 points (-3.04%). This is the first time the pattern of extreme losses has been broken since the market correction began. Analysts on CNBC are sounding off that this may mark the beginning of a bottom.

The losses today were expected, given the failure of the Senate to agree on a bill. This is not the first time the market had losses for similar reasons. When TARP failed to initially pass in September of 2007, the market responded with a 7% decline the following trading session. Once the stimulus began to take hold (and a new administration was in place), the stock market began to recover in February of 2009.

We should expect to see a stimulus package in the coming days. Keep in mind, we’re not out of the woods yet. I expect that the unemployment and GDP reports will momentarily move markets. I also expect that, in the coming weeks, those who have been treating the pandemic lightly will only become ever more convinced about the new reality. Again, this may drive markets further down.

I say may because Investors have already factored this reality into the price of the stocks. As the issues just mentioned start to slowly resolve themselves, we should see the prices stabilize. The cautious approach that I took over the last few years has left us in a far better position than most. We can begin the rotation out of these more conservative funds and into discounted high growth investments once the world settles a bit.

In the meantime, do not make any rash moves with your portfolios. Make sure to continue with retirement account investments. Continuing to do so means that you’re buying into the market at the lowest prices since Obama was President. This will help offset the losses we’ve taken in the long run. As always, let me know if you have questions, concerns, or just need to vent while you’re stuck at home.

Stay safe and healthy everyone!

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