After a 20% decline from all-time highs in the S&P 500 within only a couple of weeks, it’s hard to imagine a return to normalcy. There definitely is a new normal forming, rife with volatility and a fast rush to safe assets in the face of bad news. Something like this was to be expected after 10 years of slow, consistent market growth by the hands of accommodative central banks around the world. Low-interest rates and leveraged up assets only serve to exacerbate the potential for volatility. Last-minute Friday, however, the decade long bull-market appears to remain intact, with higher prices ending the S&P 500 at January 2019 price levels. A major technical support line at 2,650 held.
Nobody knows where this goes from here with any certainty. It’s very easy to subscribe to fear and think that there’s no chance of recovery. Sellers still have dominance and we have yet to see any rational thinking or commitment from buyers. Today, SP500 companies, such as Microsoft has enjoyed a 14% boost as investors saw it as a fire-sale.
Some government accommodation seems to be underway. Markets reversed after Trump declared a national emergency, releasing special funds, along with Congress’ commitments on additional accommodations. The Federal Reserve will release a $1 trillion of overnight loans to U.S. banks to boost lending as well as move interest rates toward 0%. The European Central Bank declared monetary war on a contracting European economy as a result of the restrictions in tourism and quarantine. China is injecting itself with $79 billion of new stimulus.
Investors should fully analyze their tolerance for risk and these moments offer reminders of what risk is. At Eureka Wealth Management, I help my clients stay focused on the goal and provide room for volatility in their financial plan. I also broker insurance and strategize on tax & estate. Call for a free initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.