Investing | 1987 vs 2020 (PART II)
Ludovic Siouffi - Apr 02, 2020
I hope you are all well and healthy. I wanted to give you a quick update on the overall markets and what we’re seeing out there – I’ve tried to keep it short and to the point, but if any of you would like to discuss further, I am always available by email.
Over the past week, we’ve been proactively selling into the market rally, specifically U.S. securities to take advantage of the U.S. Dollar trading at higher highs versus the CAN Dollar. Speaking with many of you, I would term the previous week merely as a ‘sugar-high’ on the news of a stimulus and economic relief – and we’re already seeing it coming to an end. For those of you with young kids, like me, we all know how dramatic a sugar high ends.
If you're holding onto cash, ready to deploy, our advice continues to be to hold onto your cash for the time being. Our research would suggest another sell-off to present itself in the coming weeks, setting a proper low within the markets, and giving us the opportunity of a lifetime to buy. Much needed credit given to my friend and our Market Strategist Tony Dwyer for his incredible insights.
Following up to the 1987 versus 2020 comparison from 2 weeks ago, I wanted to give you a quick update as to how the U.S. markets has been tracking over the past few days. Below we had one of our research analysts update the comparison chart to reflect the recent reflex rally we saw last week. Its shocking how close of a comparison it is to the crash of 1987.
While history doesn’t always repeat, it often rhymes and we look for clues as to how best to navigate through these challenging times – spoiler alert – we expect the market to fall from these levels.
Moving forward, if history proves to be correct, we would expect a retest of last week’s low (2237). When we say ‘retest’, we mean going past that figure, but this isn’t an exact figure, so we might see the markets get close but never cross it, or blow right past it. From current levels, that would represent an approx. drop of 15% from current SPX values as of yesterday’s closing values.
Although we are seeing some signs of relief and stabilization in China, specifically in the Hubei province, we have yet to see the curve of new cases peak in the U.S. Most would predict the worse is yet to come across North America, with hospitals already operating in war-like conditions, quickly running out of beds, equipment and personal protective equipment (PPE).
Looking at past recessions for clues as to what we can expect moving forward, there seems to be one constant – that recessions don’t last days, but rather months and years.
The table highlighted below shows us how dramatic some of the previous recessions have been, but there is one thing that stands out to me, and it’s not the “Forward Returns”.
What stands out to me on the chart below is the Peak to Trough durations, whereby the shortest one was in 1987 and lasted nearly 4 months.
Source: A Wealth of Common Sense
In summary, I’m taking a very defensive approach with all of my clients, as history and our research would seem to indicate that the worse is yet to come. With that however, I think we can all agree that the world isn’t coming to an end and that this too shall pass.
Therefore, now is the time to keep an eye out for great companies, with strong balance sheets to go on sale and consider buying on the dips in the weeks ahead.
Ludovic Siouffi, MBA, CIM, RIAC
Canaccord Genuity Corp.
The comments and opinions expressed in this newsletter are solely the work of Ludovic Siouffi, not an official publication of Canaccord Genuity Corp., and may differ from the opinion of Canaccord Genuity Corp’s. Research Department. Accordingly, they should not be considered as representative of Canaccord Genuity Corp’s. beliefs, opinions or recommendations. All information is given as of the date appearing in this newsletter, is for general information only, does not constitute legal or tax advice, and the author Ludovic Siouffi does not assume any obligation to update it or to advise on further developments related. All information included herein has been compiled from sources believed to be reliable, but its accuracy and completeness is not guaranteed, nor in providing it do the author or Canaccord Genuity Corp. assume any liability.