Saturday, April 11, 2020

The 4 reasons why the market hasn't seen its final low

Stock prices raced upwards last week on the news that the COVID-19 outbreak is improving in New York and other parts of the US, and on the news that the Fed unveiled another $2.3 trillion bazooka of liquidity. Despite these positives, I am not convinced that this bear market has seen its lows yet. Here are the reasons why.

The first is long-term investor psychology. In the past few weeks, I have received numerous questions from readers to the effect of, "I am a long-term investor, should I be putting some money to work in the stock market here?"

If we were to change our viewpoint from an anecdotal to a more formal data perspective, the New York Fed conducts a regular survey of consumer expectations. One of the survey questions asks if respondents expect higher stock prices in the next 12 months. Instead of fear, investors are exhibiting signs of greed. Investor psychology just doesn't behave that way at major market lows.

Mark Hulbert made a similar point about his sample of market timing newsletter writers in a WSJ article. While market timers were fearful at the end of the March quarter, their fear level was nowhere near the levels seen at past market bottoms.

This is not time to relax. The bear market is not over.

The full post can be found here.

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