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Dan Niles: Bear Market Rallies & Pension Rebalancing

3/31/2020

5 Comments

 
This latest rally is being helped by pension funds selling bonds and buying stocks at month/quarter end to rebalance their portfolios over the past week. Only 9 times in 30 yrs has the difference in performance of the S&P500 vs. Bond Market Return (LBUSTRUU Index) been greater than 10% with 5 trading days left in the quarter. For example, with 5 trading days left in the month on 3/24, the S&P was down 17.2% with the bond market also losing 2.3% for a difference of 14.9%.  Due in part to pension fund rebalancing, the S&P has rallied 7.3% over the past 4 trading days not including today (3/31), which is inline with the historical average of a 6.8% rally over 5 trading days. However, the average over the next 5 trading days is a loss of 1.1% and it is up only 25% of the time.  On a positive note, the bond market continues to rally and is up 88% of the time over the first five trading days of the new month and gains 0.5%. (See below.)
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During the Great Depression, there were 8 gains that averaged 23.6% over 52 days while the S&P lost 86.2% over 33 months. Unfortunately, these gains were followed by nine declines averaging 32.6% over 64 days.  This most recent rally in the S&P is a pretty typical bear market rally.
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5 Comments
Vlad link
4/1/2020 05:49:19 pm

Nice article. I am also short the $. What do you guys think about that?

Reply
Griffin O'Sullivan
4/5/2020 01:09:27 pm

https://www.macrotrends.net/2551/australian-us-dollar-exchange-rate-historical-chart

https://www.tradingview.com/symbols/TVC-DXY/

i dont really see any proof that QE causes the dollar to weaken. if anything the opposite


i think US has all the military power so their dollar is never in doubt even in an apocolyptic

Reply
Griffin O'Sullivan
4/5/2020 01:10:49 pm

...even in an apocolyptic scenario caused by a hypothetical killer covid disease, the US dollar would still hold. it would definitely still be worth $

joe larkins
4/4/2020 12:04:20 pm

Great post & appreciate your references to historic bear markets, bear rallies + analysis of Market Cap to GDP.

Assuming this is the first bear rally of the 'Great Corona', I'm tracking an initial S&P drop of -34% over 34 days (Feb 19 start) followed by a 17.4% gain over 7 days - eerily similar to the first bear in Sept 1929.

Regarding an estimated drop in 2020 GDP of ~10% (to $19.3T) and assuming we return to a normal, historic ratio of .85, one could calculate the S&P could potentially reach as low as1,640 before all is said and done with Corona, barring a medical miracle over the next few weeks.

Thanks for your continued insight into the markets.

Reply
Tessa D link
5/19/2022 12:19:56 pm

Thiss is great

Reply



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    Dan Niles is founder and portfolio manager for the Satori Fund, a tech-focused hedge fund. ​

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