Hi there—here's your investment update!
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The general consensus is that we’re currently in a Bear Market Rally
- 2/3rds of fund managers polled by Bank of America said the stock market rally since March is a temporary bounce within a broader downturn.
- Only 10% of those surveyed expect a V-shaped recovery.
- The stock market has rallied back to Q4 2019 levels, yet it’s estimated that it will take four years minimum for economic activity to return to levels seen in Q4. There’s a liquidity-driven bubble forming, just like the dot-com, housing, and corporate debt bubbles.
We’ve reached a tipping point with investor euphoria
- Investors have shifted from panic to euphoria at a startling velocity
- The market is in a buying euphoria during some of the worst economic destruction ever recorded
Resembling the 1930's Great Depression
“Don’t be fooled by the recent rebound in stocks; [it’s] beginning to resemble the 1929 market crash and the early 1930s Great Depression.” – Bloomberg Economist
The initial market crash of 2020 has resembled the market crash of 1929.
- In 1929, the S&P 500 fell -44% over the course of about 2 months.
- In 2020, the S&P 500 fell -34% over the course of a month.
The recent stock market rally resembles the Bear Market Rally of 1929/1930.
- In the middle of the Great Depression, the S&P 500 rallied +46% before crashing -83% further.
- From March 23rd to May 29th 2020, the S&P 500 has rallied +37%.
Any way you spin it, it appears to be a lousy time to be a buyer of risk assets. The limited upside is simply not worth the fatal downside risk.
Had you invested in the Bear Market Rally of the Great Depression, it would have taken you over 20 years to make your money back.
When prices and valuations fall, as we believe that they will, that’s when the opportunity for strong long-term performances comes about. For the time being, Round portfolios will remain risk-off, given the growing divergence between the economy and stock prices.
Patience is crucial as an investor, and we are incredibly well-positioned to defend against the looming correction.
See you next week.
The Round Team
Have $100,000 or more to invest? You may qualify for Round Private Client. Contact our team at firstname.lastname@example.org.