If anything differentiated the bear market of March 2020 from the previous one, it was the unprecedented reality that collapsing equity prices were the least of anyone’s concern. Worrying about portfolio problems in the face of a global pandemic suddenly looks myopic and narcissistic.

That said, there were few places to hide in the 16 days ending March 13. Usually bonds are the place to flee for safety in turbulent times. While Treasurys staged a big rally, other bonds were bouncing all over the place. Equities, gold, silver all crashed. Even Bitcoin, the purported safe haven of the 21st century, lost 50% of its value in two days.

Hiding In Plain Sight
All the signs of an overvalued equity market and a soft economy were hiding in plain sight during late 2019 and early 2020, as asset manager and longtime market strategist Richard Bernstein told advisors on a March 11 webcast. For much of the levitating market that began in March 2009, it was described as the most hated bull market in history.

But by this January, conversations had assumed tones of euphoria as investors contemplated ways to earn profits off of vacation trips to Mars. Two months later, everyone is talking about a global pandemic.

Other signs of a slowdown include:

• In reality, the U.S. economy had posted three straight quarters of below-average GDP growth. Now J.P. Morgan is predicting GDP will decline at a rate of -2.0% in the first quarter and -3.0% in the second quarter. Obviously, those estimates are rough because there is little data about the impact of coronavirus on business activity.

But as Bernstein said, it would be amazing if the U.S. and the rest of the world dodge a recession. Governments everywhere “are talking about shutting down entire industries,” he observed.

• Employment growth slipped to about 1.5% in 2019. That is close to the lowest level of the cycle, Bernstein noted. February’s surprising 275,000 new jobs was unexpected but it was a vast improvement over December’s disappointing 125,000 figure. It indicates that if a recession is beginning, the job market remains healthy.

• The federal budget deficit has been ballooning at a faster rate than nominal GDP. It could be argued that all U.S. growth in recent years has been borrowed, DoubleLine CEO Jeffrey Gundlach has remarked.

• Finally, the yield curve inverted last year. Some economists chalked this up to the inevitable result of a decade of distortionary money policy. But as Bernstein observed, the yield curve doesn’t lie.

Bernstein is just one of many to note that fundamentals have been deteriorating for several years. Rob Almeida at MFS, strategists at Morgan Stanley and others have groused that the quality of cash flow and earnings gains have become downright lousy at the same time equity and debt prices have climbed.

Almeida also believes too many companies were relying on creative accounting rather than normal business operations to propel earnings. That often occurs late in the business cycle—just recall the accounting scandals that surfaced almost precisely as the tech bubble was bursting two decades ago.

First « 1 2 » Next