The Dow’s recent surge has technically put it back in bull market territory, but this could be a red herring for investors thinking that we’ve hit the bottom.
This week has been a welcome respite from the seemingly never-ending market freefall of the past month. However, this week has also made no sense whatsoever. On the same day that an avalanche of weekly unemployment claims stunned the country, stocks staged their third straight rally.
The Dow (DJINDICES: ^DJI) is back in bull market territory due to a 20% surge since Monday. Even the S&P 500 (NYSEARCA: VOO) has crawled back from being more than 30% from its highs, to just 16% in the past month. But does this mean that the economy is miraculously fixed?
This is still a bear market
A bear market is a condition in which the price of securities falls 20% or more from recent highs amid widespread pessimism and negative investor sentiment. If you want to read more about it, try out our piece on What Is A Bear Market?
The opposite is referred to as a bull market, a 20% market rise, so technically the Dow does fit into this bracket right now, but don’t let that deceive you: we’re not out of the woods. I look at my portfolio and I see the big guns I can normally rely on — Netflix (NASDAQ: NFLX), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT) — all are still a long way from all-time highs reached in recent months.
Two of the biggest winners I hold, Virgin Galactic (NYSE: SPCE) and Beyond Meat (NASDAQ: BYND) have also had much of their gains wiped away in a manner of weeks. None of these stocks are showing signs of hitting those heights again any time soon.
On February 12 the Dow hit all-time highs of 29,551.42 points. As of March 27, we’re a long way off from that, at 22,552.17 points, so let’s not get ahead of ourselves just yet about a 21% turnaround.
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Why is the market turning bullish again?
It was reported yesterday that the number of American’s applying for unemployment benefits had risen to nearly 3.3 million in the space of days, but the market still rose? That’s enough to make Auguste Rodin ‘The Thinker’ look up and scratch his bronze head.
It seems that investors just decided to ignore this huge red flag to the economy and focus on the at-best, temporary stimulus bill solution put forward by Congress.
Yes, this bill will do a lot of good in aiding businesses to combat the downturn caused by COVID-related closures — just look at how Square (NYSE: SQ) stock jumped 13% on Wednesday — but giving out more money never solved a long-term problem. The issue with the current economic downturn is that people in isolation simply can’t spend their money and businesses can’t produce goods like they used to. Production in China for iPhones ground to a halt last month, while Hasbro (NYSE: HAS) is just this week producing toys once more.
Western civilization is now faced with the possibility of being stuck indoors for months on end, and the longer it isolates, the more businesses will fail, and the less disposable income people will have. The government’s new bill will put some money in the hands of those who need it, but what is $1,200 going to do for a person who has just lost their only source of income?
With the market pointing at losses upon open today following the jobs report, any talks of a bull rally may be quashed.
We had best prepare for some uncertain and hard times.
How to survive a bear market
A recession is the likely outcome of the coronavirus downturn, but that does not mean the end of times. Recessions are an inevitable part of economics, and it is possible to survive through it, and even have your portfolio thrive.
All you need to do is follow MyWallSt’s golden rules:
- Get started (just do it).
- Think long term (it’s all about patience).
- Buy what you believe in (don’t buy something you don’t understand).
- Never borrow to buy (stocks bought on borrowed money aren’t yours).
- Diversify your portfolio (minimum of 12 stocks across 6 different sectors.
- Invest what you can, when you can (speaks for itself)
If you are serious about your financial future, then you should consider Horizon by MyWallSt, which guarantees to help get you through these hard times with a long-term buy and hold strategy. Sign up this week and you will even receive the 7 Step Coronavirus Financial Protection Guide.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Starbucks. Read our full disclosure policy here.