Many American commentators are gleefully noting that the pandemic-induced bear market for the S&P 500 is now officially on record as the shortest bear market in history. The stark reality of a pandemic-induced economic slowdown has been countered with a federal reserve-induced monetary stimulus the likes of which has never been seen before. The first two thirds of 2020 have been remarkable because those nearly eight months have featured not only unprecedented bad economic news, but also a swift and equally unprecedented policy response to counteract it. As I write this in the second half of August, the American stock market is now slightly higher than where it was to start the year and the Canadian market is slightly lower.
The bear market lasted just over a month. Using simple math, we experienced a drop of about 1/3 followed immediately by a rise of about 1/2. Think of it this way. Say we’re starting with a market level at 300. A drop of 1/3 brings you down to 200, but a subsequent rise of 1/2 gets you back to 300. In the half year between February 19 and August 19, we’re right back where we started. Now what?
“Don’t fight the fad” never so apt?
The easy narrative is that the storm has passed and the crisis has been averted (or, at a minimum, was extremely short-lived). I have had many experienced people remind me that the phrase “don’t fight the fed” has never been more apt. Looking back over the landscape from late March to the present, I grudgingly agree that that has been the case. By making traditional income investments look extremely undesirable, people have opted to buy stocks pretty much by default. You may have heard the acronym TINA. It stands for “There Is No Alternative.” That’s what central banks around the world have done. They have quite literally taken away all plausible alternatives for retail investors seeking a return on their capital investments. Continue Reading…