Stimulus prospects help lift global markets. S&P 500 Index futures hit their “limit up” circuit breaker of 5% overnight following Monday’s losses while major Asian and European indexes posted gains. Extraordinary measures by the Federal Reserve (Fed) to backstop the economy and progress on an approximately $2 trillion fiscal stimulus package by Congress, along with oversold conditions, are the primary drivers of the bounce. While most of the conditions for a durable rebound that we have outlined in our Road to Recovery Playbook have been met, uncertainty remains high, and we know historically that bottoming has been a process.
Purchasing manager indexes start to capture global slowdown. The negative economic data everyone knew was coming is starting to arrive. Markit’s preliminary purchasing managers’ index (PMI) surveys for March showed a historic slowdown in the Eurozone; US data will be released later today. While the manufacturing PMI was surprisingly resilient at 44.8 (below 50 indicates contraction), the services PMI collapsed to 28.4. Recessions historically have started in the manufacturing sector, but the pandemic containment efforts will be felt first on the services side, which will have a strong impact on employment levels in developed economies.
Time in the market versus timing the market. The COVID-19-induced sell-off has caused many investors to wish they had timed the market better and simply avoided the recent volatility. That sounds great in theory, but in practice it is quite hard to do. For instance, the annualized compounded return on the S&P 500 Index from 1990—2019 was 7.7%. If you missed the best day of each year, that return was cut in half, while if you missed the best two days of the year the return was less than 1%. We discuss this important concept for long-term investors today on the LPL Research blog.
Fastest 30% correction in history. It took the S&P 500 a record 16 days to go from new highs to a bear market (down 20% from the highs). Now, another dubious record has been set. It took only 22 days for the S&P 500 to go from new highs to down 30%, topping the previous records from 1929 (31 days) and 1987 (38 days). Studies of human emotion show that fear is heightened when things are both unexpected and fast—like being startled when someone jumps out of the shadows. This is why in times like these it can be so important to stick to long-term investment plans.
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