Market Crash & Navigating What Happens Next

Just last week, we discussed with our RIAPRO subscribers the risk of the market not paying attention to the virus. To wit:

“With the market now trading 12% above its 200-dma, and well into 3-standard deviations of the mean, a correction is coming.’ But the belief is currently ‘more stimulus’ will offset the ‘virus.’

This is probably a wrong guess.

Extensions to this degree rarely last long without a correction. Maintain exposures, but tighten up stop-losses.”

Unfortunately, it escalated more rapidly than even we anticipated.

“It only took the S&P 500 six days to fall from an all-time high into correction levels, marking the broad index’s fastest drop of that magnitude outside of a one-day crash. Friday’s losses built on this week’s massive losses. The Dow and S&P 500 have fallen 14% and 13%, respectively, week to date. The two indexes were on pace for their biggest one-week loss since the 2008 financial crisis. The Nasdaq has lost 12.3% this week.” – CNBC

If that headline doesn’t startle you, you are also probably lacking a pulse.

However, it was two Monday’s ago, CNBC was cheering the market’s record highs and dismissing the impact of the virus as “it was just people getting sick in China.” We disagreed, which is why over the last several weeks, we have been detailing our warnings.

The correction this past week has been in the making for a while. It is why we have discussed carrying extra cash, adjusting our bond positioning, and rebalancing portfolio risks weekly for the past couple of months. Just as a reminder, this is what we wrote last week:

  • We have been concerned about the potential for a correction for the last three weeks.
  • We previously took profits near the market peak in January.
  • However, we did extend the duration of our bond portfolio a bit, and changed some of the underlying mixes of bonds, to prepare for a correction.
  • We are using this correction to rebalance some of our equity risks as well.
  • The bull market is still intact, so it is not time to be bearish in terms of positioning, just yet.
  • We are maintaining our hedges for now until we get a better understanding of where the markets are headed next.