On March 23, 2020, the S&P 500 index traded at an intra-day low of 2191.86. That number represented a decline of 35% from the highs reached on February 19th, 2020. In just over a month, the markets “cratered” under the weight of an economic shutdown due to the Coronavirus pandemic.

Today, June 5, 2020, the S&P 500 index stands at 3201 after an unemployment report showing a gain of 2.5 million jobs during the month of May, despite forecasts of an 8.3 million decline! The unemployment rate stands at 13.3% instead of the 19% that was predicted.


Now that the market indices have recovered just about all of what was lost in the February 19 to March 23 period, the most obvious questions is “Now what do I do?” As unprecedented as the market action has been since February, there are some lessons from history that still apply. In fact, the similarities to historical market moves are surprising.

I have often spoken of a “triggering event” that usually signals a market decline. After a 30% rise in stock prices in 2019, I suggested in late January that a healthy correction was needed for the markets to be able to sustain the uptrend. The markets were over-valued at the time, and while nobody could have ever predicted a pandemic with such a tragic human cost, a look at history shows us that by definition, “triggering events” are never usually predictable.

In almost every case throughout history, it has been the technology sector that has led the recovery from market lows. The current case is no exception. From February 29th through yesterday, the SPDR Technology ETF went from a high of 102.79 to a low of 68.10 (-34%) only to rally back to close at 101.41 yesterday. (+49%). So, is it too late to buy the tech sector? Probably not if you are a long-term investor. If you believe that the lockdowns of March, April and May changed the landscape in terms of the remote office, then technology will play a huge role going forward. Be selective here, as many of the momentum names in the sector are a bit overdone on the upside

I believe that the bigger story in this new Bull Market will be the renaissance of the Basic Materials, Energy and Industrial sectors. There are several forces at work here that I believe will reshape our views on “grandpa’s stocks”. The newfound focus on “buying American” and an emphasis on rebuilding American manufacturing should improve the fortunes of the companies that have survived years of reliance on foreign production. The fact that many companies did not survive is even more bullish for those that did. The “smokestack” sectors like Basic Materials, still down 3% on the year, Industrials (-8%) and Energy (-25%) still have plenty of room to move in my opinion, and more importantly may be the beneficiaries of a significant shift toward self-reliance in the US. Technology still offers significant upside over the longer term, but I think a market weighting in the sector makes more sense than loading up on momentum plays.

Finally, and perhaps most important are the lessons we should have learned from the markets over the last 100 days. Bull markets tend to breed complacency, and our generation has spent most of our adult life enjoying Bull Markets. 20% has become an expectation as opposed to a lofty portfolio goal, and risk was something that nobody seemed overly concerned about. The unprecedented volatility and emotion of the equity market since the beginning of March should cause all of us to take a step back and re-evaluate our risk tolerance and the composition of our retirement portfolios. If we do not heed the lessons of the past, we are doomed to repeat our mistakes.

Joseph C. Paul, President