There’s a big question floating around: Has the stock market bottomed out? Will we see a V-shaped recovery, or will the market make a new low? Is this the best time to invest, or should you wait? In this post, I’ll break down my thought process on what I think will happen in the upcoming months and my position on the market.
My Position on the Market
To give my opinion some weight, I have a significant position in the market. I have a $350,000 position built, representing my belief that the market will go down. This includes $147,000 in SPY puts and additional positions on other accounts. If the market makes a new low, this is when I will potentially make money.
Why I Believe the Market Has Room to Go Down
1. V-Shaped Recovery: Many people believe we’ll see a V-shaped recovery like in December 2018. However, I think the market is not poised for such a recovery. The current economic conditions and the impact of the virus create a bigger mess than anticipated.
2. Market Conditions: The virus has significantly impacted the global economy. The market dropped from a high of 339 in February 2020 to a low of 218, entering bear market territory. The feds and the president have stepped in to stabilize the market with emergency rate cuts and stimulus plans.
3. Short-Term Bullish News: The market has seen short-term rallies due to bullish news, such as the stimulus plan. However, these rallies lack strong volume, indicating weak support for the upward movement.
4. Rebalancing and Window Dressing: Pension funds rebalancing their portfolios and window dressing by big firms at the end of Q1 have contributed to recent buying pressure. These factors create an artificial sense of market recovery.
Economic Data and Earnings
1. Economic Data: Upcoming jobless claims and unemployment numbers will significantly impact the market. The market is heavily focused on economic data, which has not been fully factored in.
2. Q1 Earnings: As Q1 just ended, big names will report earnings in the next 3-4 weeks. While bad earnings are expected, the market will focus on future projections. Lower-than-expected estimates will likely drive the market down further.
3. Aftermath of the Virus: Even if a cure is found by May 1st, the aftermath of the virus will leave a significant economic mess. High unemployment, reduced consumer spending, and struggling small businesses will impact future growth and profits, driving the market down.
Long-Term Economic Impact
The economic impact of the virus extends beyond immediate concerns. High unemployment and reduced consumer spending will affect companies like Apple, leading to lower profits and stock prices. The airline and travel industries will also suffer, with reduced vacation spending and flight bookings. Small businesses, living month-to-month, may not survive extended economic disruptions, further impacting the overall economy.
Conclusion
In my opinion, the market is likely to make new lows due to the economic impact of the virus and other factors. However, this is not investment advice. The market could go up or down, and no one knows for sure. It’s essential to do your analysis, research, and take positions based on the highest probability while protecting your downside.
FAQs
Q1: What is a V-shaped recovery?
A V-shaped recovery is when the market quickly rebounds after a sharp decline, forming a “V” shape on the chart.
Q2: Why do you believe the market will make new lows?
I believe the market will make new lows due to the economic impact of the virus, poor Q1 earnings, high unemployment, and reduced consumer spending.
Q3: What factors contribute to short-term bullish news?
Short-term bullish news includes stimulus plans, emergency rate cuts, and other government interventions that temporarily boost market confidence.
Q4: How does the aftermath of the virus impact the market?
The aftermath includes high unemployment, reduced consumer spending, struggling small businesses, and industries like airlines and travel suffering long-term impacts.