Robin Griffiths and Ron William warn of similarities between today’s equity market and the 1929 Wall Street Crash in their latest report for RW Advisory.
Their report points out that bear market corrections are a 3-staged pattern (fall/crash, rally, followed by the rest of fall) and not a single event. 2020 has outperformed the early stage of the 1929 crash and the rally has in their opinion fooled may into thinking the good old days are back. They stress, however, that millions of people are unemployed and will not get their old jobs back and the debt mountain is huge and getting bigger, both of which will act as a blanket on economic growth.
Griffiths and William say there were nine rallies in total for the bear period in the 1930s (see Chart). One was up 50% and several others up 30%; none of these were a new bull market. In bear markets volatility rises, so that the largest rises and falls both occur in bear periods. As such, they caution against rushing in to buy during these rallies – they see them as selling opportunities. Instead, with yields staying low and possibly drifting towards negative territory, they think owning Gilts will preserve capital and keep options open for later buying opportunities elsewhere.
Read the full report.