Sometimes history repeats itself and I can’t help but notice 2002 when I think about today’s markets. Obviously the scenario we’re in right now is much different than 2002. However, how the market’s reacting is very similar.
If you look at the picture below that I’ve inserted, it shows some of those similarities. In July of 2002, the market spiked down and immediately bounced hard all the way until mid August. This was almost a 25% gain in the S&P 500. Many thought that was the end to the bear market. We fell all the way back down to the lows until mid October. We then bounced hard and everyone was yelling “double bottom”. We had successfully tested the bottom and passed. The market rose all the way until early December. Confidence built to an extremely high level. Remember, in bear markets, those confident people are wrong. They were wrong because the market ended up falling 17% back down near the lows. Finally, in March of 2003, the new bull market began. We knew this because fear was high and demand poured into the market.
Fast forward to the present. Fear built in January and we made a bottom in late January. We rallied only to fail again until mid March as fear built once again. We are right now sitting where we were in November 2002. There is still too much supply and not enough demand and confidence is building.
Buying can always come out of nowhere and we could start a new bull market. But, back then, the buying came in in March of 2003 and the economy started to improve quite a bit right after that. What we have today is no real buying and an economy that hasn’t turned yet. It will come but it looks too early to me. This doesn’t mean we can’t have rallies. Big ones as a matter of fact. Remember, we had a 25% rally in 2002 that was a head fake.
When investing, you have to do your homework and look at history to help guide you in the future.
