The S&P 500 tumbled yesterday, nearly 5% in what would normally be classified as one of the worst days in stock market history. Now, however, it seemed like just another routine midweek dip. As callous as it sounds, 5% crashes don’t feel all that dramatic after experiencing -7%, -10%, and -12% plunges over the last few weeks. It’s almost gotten to the point where we could find ourselves saying, stocks “only” fell 5% .
The financial press claims yesterday’s selloff was in response to Trump’s new estimates of 100,000 to 240,000 American deaths from COVID-19. While that excuse sounds plausible enough to satisfy newspaper editors, the simple truth is yesterday was little more than a natural snap-back from last week’s towering 20% rebound. These 100k and 200k estimates have been floating around for days and are actually far less draconian than the 2 million fatalities that were initially projected.
Trump’s update didn’t surprise anyone who is paying attention and it sure didn’t catch the market off guard. The truth is yesterday’s move was nothing more than the natural ebb and flow of supply and demand. But rather than take place over 1%, 2%, or 3% increments, we are seeing 5%, 10%, and even 20% swings. This is routine stuff, just super-sized.
As for what comes next, expect more of the same. Last week’s towering rebound consumed a truckload of demand and now it is time for the sellers to take control. Unless we see these social-distancing efforts have a dramatic impact on infection rates over the next few days, expect the market to slip back to the lows. Whether we bounce above, at, or under the prior lows has yet to be seen, but we should expect more down than up over the next handful of trading sessions.
That said, this is still an incredibly volatile}} market and that means big moves in BOTH directions. Just because we will retest the prior lows at some point doesn’t mean it will be a straight line getting there. Expect volatility to remain off the charts. As such, the best trading plan includes taking profits early and often. Hold a few hours too long and today’s profits turn into tomorrow’s losses.