Talking Points – March 2020

March 25, 2020 – A Potentially Positive Development

While a market bottom does not need to fulfill an exact script, there are some characteristics that many bottoms have in common. One of the most important develops when the broader stock market index makes a new low, but less stocks as a whole are making a new low. For example, during the financial crisis the market didn’t make a final low until March 2009, but by then far fewer stocks made new lows.

As of Monday’s close (March 23rd) the S&P 500 had made a new low in this correction, but the percentage of stocks making new lows had declined.

Source: Strategas

Normally this type of positive divergence takes weeks or months to occur. Could it happen so fast now because this is the fastest bull to bear in history? We will only know for sure in hindsight, but it is at least appealing enough to not be overly bearish here.

March 11, 2020 – Retirement Income Now On Sale

The drastic move lower in yields has been quite amazing to watch. A 30 year Treasury bond now only provides you 1%. Fortunately, for those willing and able to deal with more volatility there is an alternative.

Our chart today shows that the ratio of stock dividend yield to bond yields is the highest since the 1950’s.

Source: Merrill Lynch

Of course, it is critical to focus on high quality. Those that had been buying energy stocks for the yield have been crushed in the stock price and now starting to see dividend cuts. There will be many more to come.

Of course, there are many factors affecting markets at any time. The nearly 50% correction in 2008 had little to do with the election in the middle of the Great Financial Crisis.

The reality is that in any given year, corrections similar to those shown above are common. That can be easy to forget when one is occurring and increases fear levels.

Source: Greg Towner, CFA, CMT

Disclosures