With the recent rally in stocks we've already recovered half of the dramatic pandemic-driven decline. Now is a good time to revisit where things stand and what we might expect moving forward.

 

Here's a look at the S&P 500 over the past few months:


 

We covered the hows and whys of what happened and what the market is responding to in our webinar two weeks ago (replay is available here). 

 

So where do we go from here? If history is a guide, recovering the second half of the decline and getting back to new market highs will almost certainly take longer than it took to make back the first half. Here's a look at the market during the Global Financial Crisis 2007-2013 (GFC):

 

As you can see, back then the market declined for 18 months, then recovered half of that decline in about 12 months. From there, it took about three years for the market to recover the second half of the decline. 

 

History will probably show that the GFC was a deeper, more drawn-out process than the current coronavirus bear market. But clearly the first half of the recovery is usually the easier half.

 

As governments begin to make plans for re-starting economies it's clear that this will be a gradual process which could take months to accomplish. So it seems reasonable to think that this recovery in stocks will not be complete for maybe 12-18 months. But regaining the old highs would mean a 20% rally from here, so even if that takes a year or longer the returns on stocks will likely be much better than alternatives like bonds and cash.

 

And as far as putting new cash to work, we want to err on the side of caution and let as much of this uncertainty resolve itself as possible before putting new money at risk. Again, looking at how these events typically cycle through, we should have plenty of time to buy things at reasonable or bargain prices.

 

Feel free to call or email if you have any questions. And stay well!

Sincerely,

Kevin