• mbacapitaladvisors

The market is a forward-looking investor, and it doesn’t like what it sees...


I spend Sunday nights looking at the futures markets to know what awaits me on Monday morning in terms of the markets. The last month of Sundays have been miserable. Despite knowing that this morning the stock market was going to open down big (as forecast by the futures market last night), I was less concerned as I had spent Saturday watching MSNBC’s recent interview with Warren Buffett, one of the greatest investors of all time.

You can see this interview on Youtube or CNBC, hyperlinks following:

https://www.youtube.com/watch?v=JvEas_zZ4fM or https://www.cnbc.com/video/2020/02/24/watch-cnbcs-full-interview-with-berkshire-hathaway-ceo-warren-buffett.html

In this interview, at 89 years old, Warren talked frequently about his faith in American business, innovation, and how his investments in American businesses may be worth more or less in the short-term over the next several years, but he has absolute faith that over the long-term, the next 15-20 years, they will be more valuable (amazing perspective for an 89-year old).

Here is a short table that reinforces this fact:


Look at the amazing similarities in our war on this virus, World War II, and the stock market’s reaction.

Germany invaded Poland on Sept. 1, 1939, launching WWII in Europe. At first, the Dow didn't react much. Many people expected the U.S. to stay out (remember the early days of China reporting this virus…the market was continuing up…like the war, we thought it was going to be a problem we did not share).

But when Hitler invaded France in May 1940, the market got hammered. Over an eight-day period, it fell 23%. It rallied after that, but the worst was yet to come. The market was already in a serious decline, which had begun in the summer of 1941, when the Japanese attacked Pearl Harbor on Sunday, Dec. 7. The Dow hit 92.69, its lowest level since 1934, on April 28, 1942.

Then the market turned. There seems to have been no single event that triggered it.

It was, perhaps, the realization among investors that the U.S. was fully mobilizing for war and would eventually win. The Federal Reserve dropped interest rates to nearly zero (sound familiar…the Fed dropped rates to zero yesterday).

On May 7, 1942, the Dow rose 1.06 to 97.77, a gain of 1.1%, in volume greater than the day before. That 1% rally was enough for a follow-through day, a confirmation of the rally attempt. Additional high-volume days came on May 21, with the Dow up over 1%, and again on May 27.

That was the beginning of a bull market that carried the Dow up 130% in four years.

History can teach us lessons for the future, and one fact is that every bear market in the history of U.S. stocks has led to new all-time highs at some point in the future.

Stay safe and healthy everyone!

Dave & Drew

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