Markets are violently swinging? There is no choice but steadfastness

The sudden statement of the “Liberation Day” of President Donald Trump for the imposition of a shocking duties in the market, and has led to one of the worst waves of the landing that the US stock exchanges have seen at all days. Apart from your position on Trump’s commercial policy, this step is a big risk, and no one knows how things will develop. What we know for sure is that the state of uncertainty increases market fluctuations. The “Standard & Poor’s 500” index fell by 10.5% on Thursday and Friday, in a rare decline not seen in almost a century, with the exception of extraordinary periods such as the Great Depression, the collapse of 1987 and the global financial crisis in 2008. My answer was no; At least so far. What makes this drop shocking is its velocity, but the velocity does not necessarily mean sharpness. The Standard & Poor’s 500 index fell by 17% on February 19 to Friday, which is less than the 20% decline, which is the beginning of the falling market. On the contrary, the most important number exaggerates the actual impact, as a large percentage of landing is due to the huge technology companies that dominate the index. Regarding the “Standard & Poor’s 500” index of equal weight, it decreased during the same period by a more moderate rate of 14%. Credit markets .. Where are the signs of alarm? Other market indicators do not yet show much anxiety if it is already found. Some of the most prominent of these indicators are the differences in the yield (credit distribution) – that is, the difference between the income of the corporate bonds and the treasury effects – which increases significantly in times of crisis. For example, these differences rose to about 8 percentage points during the financial crisis, which indicates a growing problems with which businesses pay their debt. The differences in the return of high credit rating companies have exceeded one percentage these days. Even troubled companies, despite their major differences last week, are still close to their low historic levels. Nothing indicates that we are in crisis, but there are indications of economic slowdown. Treasury bond yields have fallen sharply since the beginning of the year, as well as the return on bonds for two years, suggesting that the Federal Reserve will reduce the short -term interest rate by 0.5 to 0.75 percentage points during this year. These moves accelerated in the bond market after the White House announced the fees last week. It is agreed with the estimation of the Federal Reserve in Atlanta that the real GDP is shrinking at an annual rate of 2.8% during the first quarter. Markets are preceding the recession? The question that investors should ask now is: What if the economy is going on a recession? To answer, I looked at the performance of the “Standard & Poor’s 500” index during each of the past ten cases, since the mid -1950s. In particular, I calculated the amount of withdrawal of the peak to the bottom for each stagnation using the prices of the end of the month. The first thing that attracted my attention is that the market often lands before the stagnation begins. Perhaps what is happening now is driven by the warnings of a number of prominent economists about the impact of proposed fees. It also found some kind of reassurance in the severity of the previous declines. The average decline during the ten cases studied by 17%; That is, completely equivalent to the haven we currently see. It is therefore not excluded that the worst in the landing is already over. The current decline is also not similar to the terrifying periods. It is also ensured that the three most bodies of data can be easily distinguished from the current situation. Two of them followed a historical stock bubble in the early 1970s (-42%) and “dot com” in the late 1990s: ‘Al-Nafi Fifte’s Obsession’ ‘in the early 1970s (-42%) and’ dot com ‘. The market was not cheap before the current landing, but it was not a bubble either. As far as the third case was concerned and the deepest-it was the result of the global financial crisis (-48%). That’s not it. The current decline is similar to the decline in the previous markets associated with stagnation, as it appears to be more than the basics. The velocity of sale indicates that investors are not waiting to see how businesses will handle the apparent economic slowdown; Or with customs duties. The data indicates that the sale of investors before asking questions is not uncommon. The “Standard & Poor’s 500” index assessments have decreased, and by multiplying profitability based on the 12 months, in each of the ten falling cases it studied. On the other hand, the profits dropped in only six cases. Most of the decline was due to the low assessments: The average evaluation evaluation was 18%, while the average decrease in late profits was only 2%. For me, this is all (the fact that the sale so far is more passionate than the analysis, and that the market has already dropped a large percentage of the expected in the case of stagnation) a good reason not to join the wave of sale. Important reminder: The market is not the economy and here is an additional reason: the drop of the market does not necessarily mean that the recession is coming. “The stock market predicted nine out of five Stagues!” Said economist Paul Samuelson. Indeed, there have been 37 falling or affirmative markets since the middle of the fifties, which is a much greater number of tenth recession during the same period. It is a reminder that the market does not always represent the economy; Sometimes arrows fall for reasons for them alone. Indeed, some market movements expect stagnation, such as low interest rates or energy, to improve the slow economy and help avoid stagnation. Of course, the market is sometimes simply wrong. The ‘collective market wisdom’ is our best tool, but it is not infallible. All of this does not mean that a crisis is completely excluded from customs duties. The market is moving quickly, and the scene can change significantly within days. As the landing rate accelerates, the complications of profitability drop to very low levels, the yield differences have increased and Treasury effects revenue has collapsed, then it is an indication of a deeper crisis – and a historical buying opportunity at the same time. But we are still far from there. And for the time being, the best step seems to be simple to wait.