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Bear market bounces try our emotions to the point of physical pain at times. We as a firm have been through difficult market conditions many times before. These are times when the sense of the unknown become visceral. Bear market bounces can be large, and because the VIX (the market’s go-to volatility gauge) is still so high, the bounces will be exaggerated. Looking at other bear market bounces in the charts below, we can see very large numbers in the bounce before a move to significantly lower lows. We cannot say that this is what is going to happen, but the VIX is telling us that this move down is not yet over. 

The “market” does not have a handle yet on the economic impact from the coronavirus. The sell side on Wall Street is used to making models for how the economy and companies will fair in the near future. They make good models, but their models are linear in their assumptions. Put another way, their assumptions are really only good when there are slowly changing economic conditions. Models do not work well with the non-linearity in economic conditions we are seeing right now in the world. The sudden stop in commerce and spike in permanent unemployment (which will be reflected in the continuing claims numbers soon) could not be modeled, and will take time to be incorporated. Forward earnings projections have not yet been reduced in a meaningful way by sell side analysts. Forward index level projections take time to adjust during times like this. Be patient, it is still a bumpy ride.

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