Sheaff Brock Reviews Why Market is This Strong in Midst of Bad News
Registered Investment Advisory in Indianapolis
INDIANAPOLIS, May 28, 2020 /PRNewswire/ -- Sheaff Brock Managing Director Dave Gilreath offers a possible reason why the market is this strong when news continues to be so bad.
On March 23, 2020, two things happened. Per The Earnings Scout, the COVID-19 death "rate of change" peaked, with a steady descent following. At the same time, the stock market bottomed, then began a sustained rise.
Obviously, the news continues reporting a rising pandemic death toll. According to Johns Hopkins, on March 23rd, the number of Americans who had died from COVID-19 was 550. Now more than 100,000 are dead. Indeed, on an absolute basis, deaths from COVID-19 continue to rise sharply, even as testing becomes more available.
Fairly constant are consumer fears and the deluge of news about coronavirus. Andy Swan, TDAmeritrade Ticker Tape® contributor and founder of LikeFolio, monitors relative fear levels among the public in near real time. The most mentioned phrase tracked in social media late March was "coronavirus." It ranked highly in mentions in the financial industry, reflecting "investor fears that are a major driving force behind this period of volatility."
What goes largely unreported, Gilreath notes, is that, since March 23rd, the COVID rate of change has been trending lower and lower. Graphing the daily number of deaths is useful, but "readers are still left trying to discern the extent to which the rise from one day to the next is larger or smaller," fastcompany.com explains.
"No other infectious-disease outbreak has had more than a tiny effect on U.S. stock-market volatility," Kellogg Insight notes, not even the Spanish Flu of 1918-1920, which killed 2% of the world population. Possibilities offered by the authors for "the unprecedented Stock-Market reaction to COVID-19" include the richness of information and the interconnectedness of the economy.
The word "unprecedented" might indicate the need to redirect attention to the "positive" implication of negative numbers, Gilreath explains. The AAII Sentiment Survey reading (published by American Association of Individual Investors) shows bullishness at its lowest level of 2020, more than 1 standard deviation from normal. In the 265 times that bullishness has exceeded 1 SD from average since 1987, the average S&P return over the following 12 month period was 17%.
Of the plethora of information being disseminated, Gilreath notes, the "richness" is flawed if it includes only COVID-19 death statistics and "unprecedented volatility," neglecting to consider the influence on the stock market of negative numbers and the COVID-19 rate of change.
About Sheaff Brock:
Sheaff Brock is an SEC-registered, fee-only independent investment firm striving to enhance portfolios of growth- and income-oriented investors, managing $702.8 million in assets nationwide as of 3/31/2020. Sheaff Brock principal David Gilreath contributes investment news to CNBC.com, Investopedia.com, Seeking Alpha, and WealthManagement.com. Visit Sheaff Brock YouTube for information.
Disclaimer:
Sheaff Brock Investment Advisors, LLC ("SBIA") is an SEC-registered investment advisor founded in 2001. Clients or prospective clients are directed to SBIA's Form ADV Part 2A prior to deciding to participate in any portfolio or making any investment decision. The views and opinions in the preceding commentary are subject to change without notice and are as of the date of the report. There is no guarantee that any market forecast set forth in the commentary will be realized. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment advice, and is not intended to predict or depict performance of any investment.
SOURCE Sheaff Brock Investment Advisors
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