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Unless one has been living under a rock lately then I imagine it would be hard not to notice that market conditions are different right as of late? In 2020 we had the effect of the corona virus on the markets starting in late February or early March. This had some folks running for the hills from a stock market perspective. The drop in the overall market was very noticeable, even for those who had very little participation in the markets. The conditions that followed seemed to be even more puzzling. The markets roared back with quite a fervor with only a few fits and starts. These market conditions might seem normal to some and a little strange to others. If this is the case then the market conditions we are seeing currently may seem very strange to folks as well, depending on experience and perspective. We are going to explore these market conditions this week in a series of blogs. We are going to answer the following questions, are these current market conditions unique? Are they new? and how does all this play out?

Welcome to 2021. Some people thought the markets were strange in 2020 while others thought that it was just business as usual. So who was right? The reality is they were both right and it comes down to a matter of perspective. We have seen steep sudden declines like February and amazing recoveries as well. The folks that thought this was business as usual were right in the fact that we have recovered from every decline in the markets since the dawn of time. The other folks that thought the markets were strange was not that the market recovered but that it recovered despite the stated reasons for the decline had not changed and it recovered despite the underlying principles still being the same or even further embedded.

We know that markets rise and fall all the time and even the circumstances around them as strange as they may seem don’t seem to stop them from going up and down over time. So, let’s answer the questions from above and see what conclusion we can come to?

First, are these market conditions unique? Well, there are those that say that the current market conditions are unique because we are facing the effects of a virus and that the response to it is also unique. This is really not the case as we have had health issues in the past that have caused market turmoil. The Spanish flu of 1918 caused a similar health issue as we have seen now and some of the measures taken, such as banning mass gatherings and wearing masks were also implemented. This no doubt had an effect on the markets although the war which would end late in 1918 was having its own effects as well. So, I would say that the circumstances have been experienced before and the response has been the same so I don’t believe this set of circumstances are unique and the market effect was that the Dow took a quick dip early on in the outbreak but also recovered as the year progressed.

So, we can say with confidence that these conditions were not unique or new. We have seen this type of thing before only most of us were not around during the Spanish flu so it may seem new.

The third question is the one that is most interesting. how does this all play out? Well, that remains to be seen but we do have some history of markets to look at and see how those situations played out and maybe this can shed some light on what to expect.

Over the course of the rest of the week, we will go through all kinds of market turmoils and see if there is some wisdom in there. We are also seeing some pretty severe market volatility as well as a battle going on between the retail investors and the institutional type investors. By the end of the week, we will examine those things as well and ask the same questions, is this new? are these circumstances unique? and of course how does all this play out?

Until the next post…be safe out there, that goes for your health and your portfolio.

Be Well and Trade Well,

Coach “Old Money” Holmes

Chart of the Day

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