
Nicklaus: A year after scary bear market, stocks are sending positive vibes
(St, Louis Post Dispatch)
March 15, 2021 (David Nicklaus)
A deadly new virus was scary enough, but it became even more frightening when it threatened to vaporize Americans’ retirement accounts.
A year ago this month, the stock market seemed to suddenly realize that the novel coronavirus would devastate the global economy. The Dow Jones industrial average’s 2,000-point drop on March 9, 2020, moved stocks into bear-market territory, and the bears mauled investors with a record 2,997-point loss a week later.
If you succumbed to stomach acid and abandoned stocks back then, perhaps remembering previous bear markets that lasted more than a year, you’d soon be filled with seller’s regret. The broad market Standard & Poor’s 500 average climbed back into record territory by August and is now up more than 75% from its pandemic-driven low.
“The biggest lesson is you can’t predict which way the market is going to turn,” said Richard Ryffel, director of wealth management at Clayton-based First Bank. “Market timing is not a good idea.”
Another lesson: Don’t look at any one piece of news, good or bad, in isolation. The pandemic was a colossal blow to the economy, wiping out millions of jobs and billions of dollars in corporate profits, but government policymakers had ways to soften the blow.
The Federal Reserve quickly cut interest rates to zero and launched emergency liquidity programs to keep the financial system working, and Congress passed the first of several relief bills that would total trillions of dollars.
By late last year, progress toward a vaccine would bolster investors’ confidence further. “Going in, there was a credible belief that a vaccine was going to take years to come up with,” said Ken Crawford, senior portfolio manager at Argent Capital Management. “That we did it in less than a year, with efficacy that was off the charts, I think that was a genuine surprise.”
The question now is whether post-pandemic corporate profits will be strong enough to justify stocks’ higher valuations. Crawford sees some encouraging signs.
One is that last year’s market leaders, mostly technology companies like Amazon, Alphabet and Microsoft that weren’t hurt by the pandemic, have cooled off. Small-company stocks have outperformed large ones recently, and beaten-down sectors like energy, banking and manufacturing are bouncing back.
“If there’s a recovery, economically sensitive cyclical companies will benefit more, so that makes sense,” Crawford said.
Ryffel also thinks record stock prices can be justified. “Stocks are getting pricey, but I don’t think you can underestimate the effect of an additional $1.9 trillion going into the economy,” he said, referring to the relief bill that President Joe Biden signed Thursday.
Joe Terril, who runs investment firm Terril & Co., worries that a surge in inflation is one thing that could shake investors’ confidence. Most forecasters think the Federal Reserve will keep interest rates at zero for several years, but Terril think the Fed could be forced to raise rates as early as 2022.
Terril, however, isn’t taking money out of the stock market. He is avoiding high-priced tech companies and buying firms he thinks will benefit from higher inflation, such as raw-materials producers.
Despite his contrarian view on inflation, Terril agrees that things look much brighter now than they did a year ago. “The recovery has been amazing,” he said. “Now, the economy around the world has got to catch up with the stock market.”