A dramatic bounce in U.S. stocks in the midst of the coronavirus pandemic is confronting investors with a difficult decision: buy into what may turn out to be a nascent bull market, or hold out for a possible return to recent lows.
FILE PHOTO: Traders work on the floor of the New York Stock Exchange in New York, U.S., March 20, 2020. REUTERS/Lucas Jackson
Investors who bought the S&P 500 three months before it bottomed during each of the last nine bear markets saw an average gain of 21% a year later. Those who bought three months after the low gained an average of 7%, according to a Reuters analysis. “If you think you’ve caught the bottom and then it continues to go lower, people get really scared,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas. “And then they tend to make emotional decisions and sell some of those things that they bought.”King Lip, chief investment strategist at Baker Avenue Wealth Management, is content to hang on to a much larger-than-usual allocation to cash despite the recent bounce.
Indeed, many believe the market has not fully factored in the damage to the economy and companies’ earnings that the coronavirus has already wrought: a recession is almost certain, and nearly 17 million Americans have filed for unemployment benefits in the last three weeks. After shifting exposure to bonds from stocks by mid-2008, Nolte said he missed the bottom of that more-than-50% drop by several months but started buying equities in June 2009 as markets rebounded.
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