Bear markets typically require multiple bottoms–with rallies often of considerable dimension in between–before they set a final bottom. It wouldn’t be surprising, for example, to see a 30% drop with signs of a bottom followed by even a 10% to 20% rally. Which would then be succeeded by another drop to another, perhaps final, perhaps not bottom.
That’s what happened in the 2008 in the financial crisis bear where stocks tried to find a bottom in August through October 2008 before plunging to the ultimate bottom in March 2009.
Market action right now suggests that we’re putting in the first bottom of this bear.
Someone–potentially a big institution–pulled almost $4 billion from the Vanguard S&P 500 ETF (VOO) on Tuesday, according to Bloomberg. That was the day after the biggest downday since 1987. Prior to this outflow, the largest in the fund’s history, the $108 billion fund had seen 19 straight days of inflows.
Traders and investors–and given the ETFs in question the sellers are probably heavily weighted toward individual investors at this point– pulled more than $6.5 billion from the SPDR S&P 500 ETF on Tuesday and $3.3 billion from iShares Core S&P 500 ETF (IVV) on Wednesday. (The iShares Core S&P 500 ETF is one of the ETFs in my Perfect 5 ETF Portfolio.)
Meanwhile, Wall Street professionals are busy lowering their estimates for the S&P 500 for the end of 2020. RBC Capital Markets lowered its year-end forecast to 2,750, with potential downside to 1,725–if the market follows the pattern of September and October 2008 and breaks below 2300. DataTrek also sees parallels to 2008 with stocks trying to hold here–as they tried in October 2008–before plunging to to 1,868 on the S&P 500 if the market tracks with the 2008 drop of 32%.
The S&P 500 closed today, March 19, at 2409.39 after a gain of 0.47%.
I would point out that there is one major difference between 2008 and 2020–the coronavirus pandemic. Markets are likely to dance to the virus’s tune in their efforts to find a bottom.