Should Investors Heed the Message of the Markets?

We have a big economic calendar featuring employment news and the latest ISM survey. In normal times, observers would be parsing the data to adjust their economic and earnings expectations. Next week few will care. The market ignored last week’s reports and there is no reason to expect a change to “old news.” Instead, the punditry will be asking:

Should investors heed the message of the markets?

And expect plenty of variation in just what that message might be!

Last Week Recap

My last installment of WTWA, I expected attention to the wisdom of Mr. Buffett, highlighting his annual letter to investors. That prediction was accurate (barely) until markets opened Monday morning. The coronavirus spread beyond China, mentioned in last week’s “worry” list, became the most important story and lasted all week. We might remember, however, that Mr. B does not pay attention to the (hypothetical) market message.

The Story in One Chart

I always start my personal review of the week by looking at a great chart. This week I am featuring Jill Mislinski’s version, an excellent combination of key variables.

Let’s take a look at where this stands in the history of drawdowns in the current market rally.

And where we stand in the long-term.

The market lost 11.5% for the week, much of it during overnight activity. The trading range during market hours was 14.1% and 16.9% if measured from the prior weekly close. Many observers were surprised by the late rebound on Friday. In times of worldwide risks, traders often are cautious in front of the weekend. You can monitor volatility, implied volatility, and historical comparisons in my weekly Indicator Snapshot in the Quant Corner below.