How Far Will The Market Fall?

[wayneL]

It seems bizzare that the asx is rallying up, even if we are flattening the curve. We will still be stuck on restrictions for some time. The longer it drags on the more it should fall. Or at least stagnate.

Might have something to do with the trillions upon trillions of helicopter money around the world, no?

 

[tinhat]

I see the market as having a lot in common with the fact that Perth is having a heatwave at the moment.

The heatwave doesn't change the fact that it's now almost half way through April and we're rapidly running out of days where such a thing is even possible with winter fast approaching. Much the same with the market in my view - sure it's warming up at the moment but we're heading toward winter not summer so far as the seasons are concerned.

Bless you brother/sister. I was on the last Tiger Air flight out of Perth to Sydney.

Stay safe.

 

[InsvestoBoy]

Might have something to do with the trillions upon trillions of helicopter money around the world, no?

Maybe markets are reflexive and deep declines are nearly always followed by vicious rallies?

 

[Knobby22]

Might have something to do with the trillions upon trillions of helicopter money around the world, no?

Isn't the US treasury going to buy junk bonds now?

 

[Klogg]

For what it's worth - I can't say I'm seeing a lot that's terribly cheap.

ADH is one possibility (I hold) given it was at 3 times EBIT, but nothing else is really prices for destruction as far as I can tell.

Big 4 banks are almost certainly priced too high.

RMC and MNY seem reasonably cheap, but you'd want to understand them rather well. I can't say that I do...

I don't deal with commodities, so I can't comment on that space.

 

[fiftyeight]

Given they're well known as being a somewhat conservative organisation in all regards and have a history that goes back 150 or so years, they've probably got a pretty thorough "no stone unturned" approach to financial risk.

There's a lesson in there - an organisation that is neither a financial nor a medical one but they identified and protected themselves from a risk that most others ignored.

I can't even imagine the secondary+ effects if everyone was this risk averse, not saying I disagree with but....

Time to short the XSO and go long ILC???

 

[aus_trader]

Time to short the XSO and go long ILC???

Does that mean Large caps are immune? I am not so sure, but I guess time will tell...

 

[flightcrank]

For what it's worth - I can't say I'm seeing a lot that's terribly cheap.

Big 4 banks are almost certainly priced too high.

They still trading noticeably lower than they were in the last months before the pandemic. They will bounce back to those heights over the long term.

 

[aus_trader]

They still trading noticeably lower than they were in the last months before the pandemic. They will bounce back to those heights over the long term.

Are you sure ?

 

[wayneL]

They still trading noticeably lower than they were in the last months before the pandemic. They will bounce back to those heights over the long term.

How long is the term you're thinking?

Months?
Years?
Decades?

I can't wait for earnings season.

 

[frugal.rock]

Seemingly, the term length will be governed by the situation.
Talk of overseas travel bans until the end of the year...etc.

 

[fiftyeight]

Does that mean Large caps are immune? I am not so sure, but I guess time will tell...

No not at all, but the spread between 2 may increase

 

[flightcrank]

How long is the term you're thinking?

Months?
Years?
Decades?

How is months long term?

Think 5 - 10 years from current levels

 

[wayneL]

How is months long term?

Think 5 - 10 years from current levels

It's bloody long term if your normal trade horizon is a few minutes

 

[aus_trader]

No not at all, but the spread between 2 may increase

Interesting. Not happening in the short term though. It's the small caps that are having a big rally at this point in time. But that could be short lived if there is any hiccup in the current rally. The punters will run for their life, so you might be proven right eventually...

 

[InsvestoBoy]

Not the same for Australia, please post supporting data.

Most recent GDP figures for Q4 2019 put annual GDP at $1,994,874,000,000.

The most recent total market cap figure on the ASX from Feb is $2,026,292,000,000.

Assume Q4 2019 GDP number will be steady for Q1 2020 (let's say we grew in Jan+Feb and wiped out in Mar because of slow Gov response).

That puts TMC/GDP in Feb at 101%

All Ordinaries, as a crude proxy for TMC has declined 29.4% since end of Feb.

That puts TMC/GDP currently at 75%.

Now the TMC number comes from the ASX and assumed to be reliable. GDP comes from ABS but RBA also has their own copy of the data. So the "TMC/GDP" value depends a lot on how you calculate GDP. I used sum of last four quarters of "Gross national income: Current prices" numbers from the ABS to calculate above, but they themselves use "Gross domestic product GDP, Chain volume measures - Annual" which is slightly different. I notice you posted GuruFocus chart, they seem to use a different number for both GDP and TMC (WorldBank) which makes the chart look different.

My chart (up to Q4 2019)
View attachment 101646

GuruFocus, imputed to current using ASX300:
View attachment 101647

Some disagreement there about numbers, that is fine, the point is that neither shows valuations as measured by TMC/GDP to be "much the same for Australia", in fact both would show the current price as cheaper (by this valuation metric) than both GFC lows and tech bust lows.

That, of course, is based on the assumption of Q1 2020 GDP being flat against Q4 2019 GDP. GDP is notoriously revised a lot over the years so make of that assumption what you will, maybe all of 2019 GDP numbers will get revised lower over time.

Siblis Research purports to carry Shiller CAPE ratio for many countries. I don't have access to their private dataset but you can see a 5 year sample on their site: https://siblisresearch.com/data/cape-ratios-by-country/

The most recent reading they have up there is from June 2019 is a CAPE ratio of 17.94. You can imagine two Q of earnings data falling off the back of that series and two Q of earnings being added to the front since then. Probably since then the denominator hasn't changed all that much. If we impute a 34% decline in the All Ordinaries since end of June 2019, and assuming the cyclically adjusted earnings denominator is unchanged, we could say the CAPE might be something like 11.

Star Capital, a German fundie, tracks CAPE ratios (and other valuation metrics) for MSCI indexes. https://www.starcapital.de/en/research/stock-market-valuation/
For MSCI Australia they have the CAPE as 18.6 as of 28.02.2020. Now MSCI Australia index AFAIK is something akin to the ASX100, so only the top of end of town really and this will be using whatever is the latest earnings data provided by MSCI probably. But as another proxy we can check it. If we impute a 24% decline in the ASX:VLC ETF since the end of Feb, we could say the CAPE might be something like 14.

Compare this with the US:
- CAPE is approximately 20
- TMC/GDP approximately 100%

Not saying that Australia is cheap or US is expensive (see discussion here for that https://www.aussiestockforums.com/threads/market-bottoms.35299/#post-1062915 ) but only disagreeing with "much the same for Australia".

CC @kid hustlr

The latest data from ASX is updated with March total market cap.

I see the IMF is forecasting GDP to fall in AU by 6.7% this year.
https://www.abc.net.au/news/2020-04...onavirus-growth-hit/12147818?section=business

Plugging last sum of last 4 quarters GDP * 0.933 into the spreadsheet withthe March market cap figure puts TMC/GDP at ~85%.




which would put us approx in the "Fair Valued" category (based on assumptions from US markets)

 

[qldfrog]

The latest data from ASX is updated with March total market cap.

I see the IMF is forecasting GDP to fall in AU by 6.7% this year.
https://www.abc.net.au/news/2020-04...onavirus-growth-hit/12147818?section=business

Plugging last sum of last 4 quarters GDP * 0.933 into the spreadsheet withthe March market cap figure puts TMC/GDP at ~85%.


View attachment 102266

which would put us approx in the "Fair Valued" category (based on assumptions from US markets)
View attachment 102267

Fair but on the high side, so not a bargain and this is based on march market (low) vs march GDP(high)
It is quite reasonable to assume we are now lightly overvalued based on April figures?
Not trying to fight for the sake of it; glass half empty or half full: for me still overvalued at yesterday's price
But who has to say market has to be fair valued in either short or even medium term
Thanks for the graph

 

[finicky]

Is this a useful 'template' for the Chinese Communist Party inflicted bear market of 2020?
From an AFR article this morning:

"During the dotcom crash, the S&P 500 fell 27 per cent, rose 19 per cent fell 26 per cent, rose 22 per cent and then fell 33 per cent.
During the global financial crisis the index fell 18 per cent, rose 12 per cent, fell 47 per cent, rose 25 per cent and then fell 27 per cent."

So each bear market predecessor had 5 waves and we're only in a wave 2 rally if history is repeating.

In today's same AFR Chanticleer article - research house, 'Investment Trends'' survey of retail investors taken last Saturday found that 66 per cent think the market will go up over the next 12 months, omg
No way I do, how about you? I must admit though that I have fallen in line so far with 30-40% of other retail investors by adding to my holdings. The bulk of retails are staying steady in their holdings with a small minority reducing their holdings according to this 'research'.
(Source: my rough editing of AFR's Chanticleer article today, Friday 17 April)

 

[waterbottle]

Has there ever been a V-shaped recovery?

There have been some great posts in this thread over the past few weeks, although all of them are speculative. I don't think anyone can truthfully predict what will happen.
Although governments have dropped the ball globally (really, there hasn't been any single government that had responded to COVID-19 according to what the 'experts' have been calling for) the coordinated, international response has been precise and effective.
There has never been a time in human history when the majority of western governments have agreed to pay 70-80% of an employee's salary without them having to do any work.
There has never been a time when economic activity could still occur in a virtual world and without physical proximity

I think the responses we have seen from governments has set the floor. Citizens will have access to funds which can be spent to access necessities that will lead to profit for companies.
The economy will survive and there will be a readjustment phase, but unless there is some secondary shock I don't see why we should be heading any lower just...

 

[finicky]

This is a good pictorial comparison I found.

S&P 500 Index Chart Long-Term Chart
By Chris Kimble
April 13, 2020

"Over the past two weeks the stock market has rallied sharply, seeing the S&P 500 retrace 50 percent of the 2020 market crash. The quick burst higher has many feeling a sense of relief… but could this be an ominous sign?

The past two market crashes in 2000 & 2007 saw the broad stock market index put in a March low at each (1) before rallying and peaking at its 50 percent Fibonacci retracement level at each (2). This then led to an acceleration of selling and new bear market lows.

Could this be happening again this year? The S&P 500 put in a crash low in March before rallying back to its 50 percent Fib retracement level at (3).

Is history repeating right on time? Is the bear market rally setting up a giant bull trap? Bulls sure hope not. "