US Equity markets were extended long before the Coronavirus took hold, in fact, the bull run in the stock market went long past previous rallies as cycles lasted 7 years before finding a top. The 2020 bull market ran 9+ years but began its accent in 2009 after the housing market crash of 2008. Market cycles are interesting to look at in hindsight but are important to review when we are in the middle of an emotional sell-off as we are today. It gives an important investment perspective.
The chart shows the outsized volume that occurred at the bottom of the sell-off in 2009, which represented the exit of the retail investor. In effect, the Mom and Pop investor missed much of the rally that happened in the decade and swore off stocks until later in the cycle. I can tell you, the same things are happening today, and this 15% Coronavirus sell-off is causing investors to exit positions and testing their mettle. The ability to hang on through volatility is not a learned skill, it only comes with the experience of having lived through market declines no matter the reason behind it. This sell-off looks like it is nearly done, but how the longer-term pattern continues is difficult to predict.
History shows that bull markets plod along, and bear markets decline in the bat of an eye, history also shows that volatile sell-offs with outsized volume should be bought. Investors, retail or institutional can take clues from historic sell-offs and watch for important clues, like volume and extreme volatility, and start buying when there is blood in the streets. Every investor should have a long term portfolio that they tuck away. In 2020 it should be made up of growth sectors like AI, Blockchain, Cannabis, Bitcoin and other digital currency, and it’s best to try and add to positions during historical declines like we are seeing now, today in March 2020 there is clearly blood in the streets.
