According to Vanguard, only 1% of its American clients placed trades last week, of which 70% were buyers. Over the last two weeks of extreme volatility, Vanguard’s S&P 500 ETF has seen net inflows on every single trading day, according to new flow data from ETF.com. Unfortunately, those investors are getting pummeled.
It’s almost impossible to comprehend doing nothing to manage risk thus far in 2020. Does every single Vanguard investor have an investment horizon of more than ten years??? It’s a shame to see so many retail investors near retirement being hurt so badly this week.
Look, we’re going to call for stocks to stage a powerful recovery from their worst sell-off since the 2008 financial crisis, but only after suffering more declines first. This strikes me very much as an event-driven bear market akin to that of 9/11. While today’s and Monday’s market plunges were dramatic, the good news is that bear markets triggered by one-time shocks are shorter than those caused by structural imbalances like financial bubbles or economic reasons such as higher interest rates. And we actually see many favorable economic factors like lower oil prices, easier monetary policy and fiscal stimulus that have the potential to serve as tailwinds to a recovery.
That being said, no other event-driven bear market has ever been triggered by a virus and coincided with such low interest rates, so it’s unclear what effect a monetary response will have. The tape is broken, and the next few months are bound to be choppy. We continue to advise caution and adherence to one’s own personal financial plan.
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