April 3, 2022
Weekly Market Outlook
By Keith Schneider and Donn Goodman
For those in cold climates, March signals the onset of Spring and warmer weather. Many people travel to warmer weather, and March is a period for getting away. For kids in school, especially college students, March is the gateway to “Spring Break.”
March Madness, of course, describes the NCAA basketball teams competing in brackets and how frequently some of the best-ranked teams don’t get out of their early brackets. This year only 5% of the brackets submitted to the sports betting operators were still on target after only the first round!
You might be surprised to learn that betting on March Madness this year topped $3.1 billion. That number only covers the legitimate bracket contests and betting. I am confident that it is much higher than that.
The NCAA makes almost $1 billion dollars from March Madness.
The college basketball team that survives March Madness will be crowned the National Champion Monday night (April 4), and this chapter of March Madness will be closed.
This year March Madness also occurred in the stock market.
The bears appeared to be the odds-on favorite coming into March after January and February’s volatile 20% decline in the tech-heavy NASDAQ. However, true to March Madness, the bulls responded by mounting one of the strongest ever 4-day rallies ever.
This rally caught many traders and investors off guard, however, unlike the NCAA, the market crowned its winners for March Madness (and the first quarter) last Thursday.
Also, unlike the NCAA, the year is not over, and there’s a lot more ‘excitement’ to come (not necessarily good).
For example, this year, another form of March Madness has been the outbreak of war in Ukraine which has only continued to expand and complicate markets.
Will The Correction Last?
Corrections of this magnitude and quickness typically don’t recover this rapidly.
Going back to 1928; the average peak-to-trough pullback has been -16.3%.
During the period from 1928 to 2021, stocks fell at least -10% in 63% of the years.
Given the factors of:
We expect to see above-average volatility with stock surges in price both up and down.
We’ve written in this column repeatedly over the past few weeks that inflation may be the worst thing for stock prices in the next 1-2 years.
With inflation numbers similar to the early 70’s, we are all too aware that high inflation leads to a rapid rise in interest rates, a reduction of corporate revenue and profits, and then a slowdown in the economy.
When the market sees this coming, it leads to a contraction of market multiples – lower stock prices.
Our fear is that we are going to see unprecedented Stagflation that will add to the volatility of the markets and, at best, a sideways performing market.
Recapping The Quarter.
Here is a good chart of just how volatile the stock market has been this past quarter.
Here are some additional details about the rally (March Madness):
See the illustration below:
Over the past few months, in this column and by our own Mish on national TV appearances, we have suggested diversification into commodities, oil-related stocks and ETFs, agricultural ETFs, energy-related ETFs, Gold, and Silver.
We want to continue with this mantra and call your attention to a number of our investment strategies being positive on the year. Primarily those concentrated in energy, agriculture, and precious metals.
In fact, Gold was the strongest performer in the quarter, as illustrated in the chart below:
What We’ve Learned?
Last Week’s Noteworthy Market Conditions:
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