After the writing of our Quarterly Market Overview on Monday the 11th, the market tried to find a near term bottom through Thursday when we got a bit of a relief rally. Then came Friday and the market opened extremely weak as oil fell below $30 a barrel. There was some buying off the mid-day lows which could be viewed positively as we went into the three day weekend. We are starting to see some sign that a short term bottom is near. First, the market is simply oversold. It has already priced in the worst and has likely overshot the mark to the downside. Another sign of capitulation is that even the best of names over the last year were sold Friday. The “FANG” stocks; Facebook, Amazon, Netflix and Google were all down about 3% or more. The bottom is near once investors start to “throw in the towel.”
Market corrections are never fun and even less so when you have to endure them twice within a four month period. Like August last year when the market bottomed on the 24th, we expect the market will soon get out of this emotional time and focus again on the fundamentals which remain reasonably sound.
Intermediate and longer term we firmly believe the bull market is intact. We are trading at valuations that are historically average and we are not seeing the excesses that would cause us pause. This month is on track to be the worst month since February of 2009. It is interesting, at that time, the bottom was in place less than a month later on March 9th, 2009.
We encourage our clients to focus longer term and not let loss aversion create emotional decisions short term. Emotional decisions now will likely be viewed as bad decisions in hindsight. We expect the market to bottom soon and maintain our intermediate and longer term bullish stance based on the underlying fundamentals.