Entering text into the input field will update the search result below

4 Reasons Why The Market Will Dive Again

May 04, 2020 9:14 AM ETBRK.A, BRK.B, SPY960 Comments


  • Markets have enjoyed a massive rebound since the March lows.
  • Bulls have gotten ahead of themselves, and the economic reopening is a classic sell-the-news event.
  • Warren Buffett's gloomy commentary could cause a change in sentiment.
  • Commodities and bonds are both casting serious doubt on the recent equity rally.
  • This idea was discussed in more depth with members of my private investing community, Ian's Insider Corner. Get started today »

I'm generally inclined toward a bullish outlook. Throughout the previous bull market, I stayed upbeat at times, such as December 2018, when many people thought a new bear market was upon us. Even now, I remain optimistic for the next five years.

The economy was in structurally decent shape prior to the pandemic, and we didn't have the sorts of massive financial problems - such as the 2000s housing bubble - that typically lead to severe downturns. In short, I'm firmly in the "This is not a new great depression" camp, and I think the S&P 500 will make new all-time highs within the next few years.

That said, bulls really need to calm down a bit right now. The "V-shaped recovery" rhetoric is getting a bit out of hand. After a huge rebound since the March lows, we should expect the markets to chop around at a minimum, and we'll likely see another sizable decline. This certainly isn't the time to be chasing stocks to the upside. Here's why I'm cautious.

Sentiment Is About To Sour

While we've seen a huge round of optimism in financial markets, things over on Main Street look far less promising. Economic numbers are the worst they've been in decades, and they're still getting rapidly worse, at least for the time being. Not only are things not improving yet, we don't even know how deep the hole is at this point.

Investors are cheery now as the possibility of reopening the economy looms large. But once everything is reopened for a few months and we start seeing just how much economic activity disappeared, expect sentiment to turn sharply lower. The early data we're seeing out of China's reopening is not especially promising. And with unemployment at its highest since the 1930s in the U.S. and other developed countries, it's unlikely

If you enjoyed this, consider Ian's Insider Corner to enjoy access to similar initiation reports for all the new stocks that we buy. Membership also includes an active chat room, weekly updates, and my responses to your questions.

This article was written by

Ian Bezek profile picture

Ian Bezek is a former hedge fund analyst at Kerrisdale Capital. He has spent the decade living in Latin America, doing the boots-on-the ground research for investors interested in markets such as Mexico, Colombia, and Chile. He also specializes in high-quality compounders and growth stocks at reasonable prices in the US and other developed markets.

Ian leads the investing group Ian's Insider Corner. Features of the group include: the Weekend Digest which covers everything from new ideas to updates on current holdings and macro analysis, trade alerts, an active chat room, and direct access to Ian. Learn More.

Analyst’s Disclosure: I am/we are long BRK.B. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (960)

Ian, who looks like genius now? Oh those of little faith. Friday they make fun of you and today you are a Prophet. All investors should forced to read the history of the 1929 crash. From March of 1929 until October every sign was ignored because people were making money, AKA rampant speculation. Sound familiar? I do not expect to see a crash like 29. I do hope that some reality will now set in and an extended downward cycle will sober investors. The country is in a world of hurt. Time for the deniers to come to grips with just how bad things are.

"Those who cannot remember the past are condemned to repeat it"

George Santayana
Kyle Fishman profile picture
It looks like Ian didn't know what he was talking about.
Go Lakers profile picture
He knows by now @Kyle Fishman - but many people on this thread told him at the time. Too much cash sloshing around looking for a home for anything resembling a dive to come to pass.
In the great plagues of the 14th Century between one-third and two-thirds of the entire human race perished (no one knows for sure). Those poor souls had no idea how to protect themselves from the disease. We, on the other hand, know exactly how to protect ourselves from Covid-19, which is why it is likely to be less deadly.

We have only to stay at home and avoid other people. Will this kill the economy? No doubt. Will it crash the stock market? We should be so lucky! This is my worst year as an investor in the past twenty-five, not because my stocks are down-- most are actually up-- but because I can't keep up. On a 12-month basis I am trailing the SP500 by 10.15%; YTD I am behind 7.66%. My dividend stream, which usually increases around 10% a year, is up a measly 47 basis points.

Clearly I need to buy more dividends. So let the panic selling begin. Please.
Kyle Fishman profile picture
The market is now 23% higher than it was at the time this article was published.
Diesel profile picture
And it's going to go up another 23% from here.
Sure is quiet here all of a sudden. Where are the Uber-doober bulls gone?
Nobody wants to get sassy today?
Illuminati Investments profile picture
Four Reasons Why the Market Will Never Dive Again...
1. The Fed
2. The Fed
3. The Fed
4. MMT...implemented by the Fed
We are diving today. Dow is down 1500 points from where it sat yesterday at this time when it posted 27,500
Go Lakers profile picture
Still up 2600 points since May 14, and 7000 points since March 23. Big deal.
Illuminati Investments profile picture
Yup, I just had to reverse jinx it to get a decline. I was actually bearish, but now I'm like a pig in mud today buying at an (albeit slight) discount.
Trigalnorte profile picture
Ian Bezek and Brad Thomas are the worst predictors of SA. Oh and that guy who spam$ with articles...Lerner something. They are really a trilogy, like the stooge$.
Go Lakers profile picture
We might get a downturn eventually but:

a) we won't be testing the March 23 lows, and
b) early is wrong in this business.
This week looks like it will be sideways to dead but next week will see some decent declines finally. We are heading back to 2800 S/P.
Ian Bezek profile picture
Thanks for the recognition Trigal, with so many authors here at Seeking Alpha, it's an honor to be in the top three.
Barron's this weekend quoted Jeremy Grantham as saying the stock markets are currently priced in the top 10% in history while the economy is in the bottom 1%. Grantham has the reputation of recognizing market turns and taking action. He exited Japan and Dotcom holdings a little early but nailed it in 2007. He also stated that his confidence that this rally will end badly is increasing and has slashed his exposure to equities. Grantham manages $115 billion in funds. Interesting to me that so many really knowledgeable experts including Buffett, Munger, Gundlach, and Marks are ignored by the small retail investors who have the most to lose.
Sundance Utah profile picture
Are you buying an index or stocks? I am buying stocks, and those most beaten down. Everything I have bought have positive earnings and P/E ratios less than 10 (Divvie payers too). You know what happened this time, for the first time in the history of the stock markets? The FED front ran the hedge funds. Cut them right out out of the loop (Buffet too). Markets may correct or even crash, but retail investors who bought into March and April have that much more cushion. Hedge funds that are still out, what are they going to do? How long will they wait believing they are right and the market wrong? Hedge funds have the dilemna, not the retail investor who has seen 30-300% gains...or more.
diroha profile picture
In general there is a continuation of negative comments, stop for a second and think about how business will play out over the coming months and you may understand the rally better. Sales levels are going to exceed expectations which means that costs will be below those associated with similar past revenue, therefore margins and earnings will exceed expectations. End of story.
Donggle profile picture
@diroha "Sales levels are going to exceed expectations" yes 2 cents is more then 1 cent expectation, but if you need 5 cents to keep the lights on its lights out. Only the big blue chips got the deep pockets to wait.
diroha profile picture
You are wrong. The consumer in many cases was kept greater than hole because of the generous unemployment benefits. You can see in retailers that were accessible online or physically they had great sales. The consumer is armed and ready. BTW I have had this position for awhile now and it can be verified by searching my comments. I did not come to this conclusion after the market rallied.
@diroha - true you have been consistent in this belief. But last I checked Americans savings rate is at a sky high 33%!! At same time credit card debt was getting paid off at a record rate in May. So the question is will that continue? Or will folks fall back to their bad consumption tendencies? You are likely right, a consumption addict will always need their fix.
Kyle Fishman profile picture
@Ian Bezek The market is now 12% higher than when this article was published -----
you are absolutely full of baloney.
Pablomike profile picture
So???? It's only been 30 days. See me at Halloween and you'll change your tune. I promise!!.
I would not mock Ian too much, Kyle. The last word is not written on this rally yet. I would agree its gotten the best of us though. I am technical and its even surprised me by pushing the boundary in ways that I had not quite anticipated.
Kyle Fishman profile picture
@Pablomike How do you know that?
One gets the impression that we could go to war and the stock market would go up. All those in the FED, government officials and Wall Street would not be fighting so why not. Someone did say that we are in a new paradigm.
Trigalnorte profile picture
Ian, when is the market going to crash? Someday?
How about today? Is that soon enough?
Illuminati Investments profile picture
This market will never crash again, I just went 110% leveraged long!

There, that guarantees it will crash tomorrow...
Ta0 profile picture
@PM Analyst
It's almost closing bell and nothing crashed yet.
Biological profile picture
Retail went ballistic today on smoke and fumes today; I mean SPG is probably collecting less than 10% rents. Perhaps some possibly early, positive news (ADP) but, man, it feels forced, irresponsible FOMO; feels like that last three shots of Tequila before the horrible hangover is inevitably firmed up. Good luck folks.
Obviously the market is not going down until Wall Street decides they want to short. Shorting gold sector at this time. Yes it is different this time. Big up moves nearly every day.
Is there anything sillier than investing on where you think the market will be in six to twelve months from now? Put aside the money you think you will need to pay your bills for the next five years, and put all of the rest into a selection of companies that you think will be here ten years from now.

If you think you can do better than that, you better be damned good.
Ta0 profile picture
It's not as easy as that. Ten years ago, who'd a thought Coty would be struggling, or GE would be half dead, or Hertz would be bankrupt, or all the airlines and hotels would be in distress and Boeing in deep trouble.

Heck, six months ago, I thought for sure Tiffany had been bought out by Louis Vuitton but looks like they are thinking about backing out of the deal. So now, time frame of six months to a year outlook is very prudent, in my honest humble opinion.
I did not mean to suggest that a ten-year portfolio is guaranteed to do better than an twelve-month portfolio (although I do believe that is more likely to be true).

Perhaps I should restate my position. I believe you will do better by creating a portfolio of your best long-term bets (and selling your losers, as they occur, as they inevitably will) than by making twelve month bets.

I have to admit, however, that I am not aware of any real-world tests of this idea.
And here we are a month later with another black swan event and the market only goes up.
Go Lakers profile picture
@Clthokie - are you asserting the current social unrest is a black swan event?? Wow, that bar has really come down, hasn't it?
Ta0 profile picture
@Go Lakers
I would consider COVID 19 a black swan, and the protests a huge vector for the black swan to spawn into a bigger black swan.
Go Lakers profile picture
@Ta0 - the black "swan-ness" of COVID-19 is baked in and as a direct result, the stock market is already looking right through 2020. That means the only way social unrest has an impact on this market, this market today, is if you assume social unrest continues through 2020, and probably beyond.

Seems unlikely.
I will not be buying any property insurance companies anytime soon. Imagine, persons are arrested for opening their businesses, but looters are not.
SPEND your money. Write a WILL profile picture
Negative articles are the most bullish signs ever!

Kyle Fishman profile picture
The market's now about 7% higher than when this article was published.
Pablomike profile picture
So??? Have an opinion contrary to this article?? Please articulate!!!
Kyle Fishman profile picture
yeah, my opinion is people should stop pretending they can time the market.
Pablomike profile picture
So despite the fact that the S&P is back over 3,000 already with how many million unemployed and many entire industries going to have a really bad summer you don't think the market will ever go lower??? Get back to me this fall. I'm betting big we have at least a 10% correction from here. I won't be surprised if it's more than 20%.
As to timing the market I dumped all my mREITS based on the crashing 10 yr yield. Covid 19 makes me look even smarter as I bought them back at fractions of what I sold them for.
5ofDiamonds profile picture
"4 Reasons Why The Market Will Dive Again" @Ian Bezek

Here is a disturbing thought Ian - What if 40M Americans are unemployed, and DOW crosses over 25,000?

Have you ever wondered as to why a CEO, just held responsible for the downfall of his business, is paid $700M as severance?

The way a business works, and how the top executives are paid, can be extrapolated to the whole stock market. If you are an employee, and you do not reach the VP/SVP/EVP/Cxx level in your company, you have no idea what I am talking about.

Wall Street is that CEO. Main Street is totally clueless.

My 3c.
@5ofDiamonds Good point. Main Street is totally clueless because ignorant people, like poor people, are far easier to control, manipulate, dominate, rule, OWN than those with at least some wealth and with at least some idea of the truth, and the ability to think for themselves / overcome the hypnotizing influence of mass lies on the major media.

-- Which has become the drug of choice for millions of dumbed - down Americans who are universally, tragically unaware that they are being LIED TO every day
Ta0 profile picture
...sadly...there are "millions of dumbed - down Americans" who consider themselves 'woke' and feel that they are the only ones who have "...some idea of the truth, and the ability to think for themselves", and that everyone else is "...universally, tragically unaware that they are being LIED TO every day".

The key here is to know which group you have allowed yourself to align with.
@Ta0 AMEN my friend. Well said. I appreciate such insightful thinking. Actually there is a new - ? English word that may come close to identifying the malady of "dumbness" in so many; "Metacognition." My take on it is that those who are unable to imagine that the opinions of others, even if they seem to disagree with their own, are nevertheless worth listening to thoughtfully. These are the ones lacking, more or less severely, the highly desirable "heart" quality of metacognition.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

Related Stocks

SymbolLast Price% Chg
Berkshire Hathaway Inc.
Berkshire Hathaway Inc.
SPDR® S&P 500 ETF Trust

Related Analysis

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.