Market crash has reached the ‘panic’ stage, and ‘demoralization’ is still to come, strategist says

At least you can say the record-setting bull run didn’t end quietly.

The S&P 500 entered a bear market — a 20%-plus drop from highs — with the biggest drop since the 1987 crash, when it declined 9.5% on Thursday.

Tony Dwyer, Canaccord Genuity’s strategist who was a big bull throughout 2019, had already become more cautious this year even before the coronavirus outbreak and OPEC’s oil price war finally cut the legs out of the bull rally. “We believe that until there is proper testing and clarity for the COVID-19 virus in the U.S., it is impossible to come up with a reasonable turning point and fundamental assumption, so we are therefore relying on human nature following a market crash as a guide,” Dwyer said.

He says there are three phases to a crash — panic, relief and demoralization. Dwyer said Thursday’s action only happens in a crash and is indicative of a panic.

Relief develops when there is a reflex rally with investors “simply glad it stopped going down.”

Finally, demoralization comes when the market tests the panic low and possibly breaks it, as seen in Oct. 2011. “The good news is that this is quickly followed by a significant liftoff in equities.”

He adds that the bulk of the crash “has likely already happened” and could move back to an offensive position after the bottoming process plays out.

MarketWatch - Published: March 13, 2020 at 8:37 a.m. ET By Steve Goldstein


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