by Gary Alexander

August 18, 2020

If you fell asleep six months ago, after the market closed on Monday, February 18 – when the S&P 500 closed at a record-high 3,370,29 – and you didn’t wake up until this past weekend, you would see the S&P closing at 3,372.85 – virtually no change in six months. If you didn’t look at the charts, you would never know that, while you slept, the S&P fell 35% in 33 days until March 23rd and rose 54% after that.

On February 18th, the Chinese coronavirus was largely confined to China. The NBA basketball season was in full swing – and now it still is, with playoffs starting this week. You didn’t miss a beat, except for different writing on their uniforms and those huge-faced, funny-looking “virtual” fans in the bleachers

NBA "Virtual" Fans Image

Another confusing fact about the “flat” S&P 500 chart since February is that NASDAQ was very “hot,” and the Russell 2000 was very cold. Also, Growth stocks left Value in the dust. The ratio of the Growth to Value components of the S&P 500 Growth index have been way out of alignment this year, exacerbating the misalignment that led Growth to trounce Value ever since 2007, well before the last big recession.

Style Ratio - Standard and Poor's 500 Growth Divided by Value Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The recent Growth/Value surge resembles the North Face of the Eiger in Grindelwald, Switzerland, a rise that may well end the way it did after the 1999 ascent at the left of this chart – but with this disclaimer: The 1999 rise was dominated by dot-com fantasy stocks with no earnings. This time, the vertical climb is dominated by a handful of trillion-dollar mega-cap stocks, with solid earnings. Their acronym matches the red hat Trump fans wear: Microsoft, Amazon, Google, and Apple (MAGA) – but the big tent for stock winners keeps expanding, so the Fab Four have now become a Magnificent Seven, creating a new acronym, FANGMAN (Facebook, Amazon, Netflix, Google/Alphabet, Microsoft, Apple, and Nvidia).

Navellier & Associates owns Facebook, Amazon, Microsoft, Apple, and Nvidia in some managed accounts but does not own Google/Alphabet, or Netflix. Gary Alexander does not own Facebook, Amazon, Netflix, Google/Alphabet, Microsoft, Apple, and Nvidia in a personal account.

Looking back to 2000, notice the “double top” that year. In August 2000, the Dow rose 693 points (+6.6%) and the S&P 500 climbed back to a “double top” that month. The S&P 500 first peaked at 1527.46 on March 24 then dipped 11% in three weeks before recovering to nearly match its previous peak at 1520.77 on September 2, on the Friday before Labor Day weekend. After that – during the disputed election between Bush and Gore – the overall market began to fall. My point is that there will likely be warnings before the market tumbles, but those stocks that have soared the farthest may be hurt the most.

History is Still Our Greatest Guide to Seeing the Future…or Understanding the Present

“Rip van Winkle Investing” doesn’t involve falling into a long-term trance. It means reading more history and looking at today in light of the past. I’ll grant that 2020 is a crazy year, but so are most other years. We always live in unpredictable times. Right about now, everyone’s eyes and ears are focused on riots, or an election or a disease. But history will likely say we overdid our focus on these events, just like we may have overfocused on any alleged Russian intervention in the 2016 election over the previous three years.

Similarly, two years from now, we may wonder why we defunded police departments or closed vast segments of our economy, or closed schools in fear of a disease whose victims were 80% over age 65.

Just look at any random year in history, as I have done here so often: No year is a walk in the park. Then, look at the worries that dominated the news, and you will find that they often obsessed over trivial events.

100 years ago, 1920, the big fear was a Red Scare and Eastern European immigration after the Bolshevik revolution in Russia. The economic fear was inflation, but the Big Hurt that year was a 46% market crash, a serious recession, deflation, and a President (Woodrow Wilson) secretly felled by a stroke, with his wife clandestinely running the country. In the midst of all that came two revolutionary new Constitutional Amendments, one forbidding alcohol transportation or sale, the other allowing women to vote!

Two years later, far from fearing a Red Menace, we rescued Russia during their first major famine (see “The Russian Job: The Forgotten Story of How America Saved Russia from Famine,” by Douglas Smith”). Then came the Roaring 20s: Our GDP and stock market soared. Radio and autos proliferated.

Dow Jones Industrial Average (1920 - 1929) Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

75 years ago, in August 1945, we were victorious in war on two fronts, but the seeds of a new Cold War and an Atomic Age were born, as the U.S. bombed Hiroshima on August 6 and Nagasaki August 9. Japan surrendered August 14, and on August 25, the Cold War was quietly born when a Baptist missionary and U.S. army specialist John Birch became Cold War martyr #1 by Chinese communists in Anhui province.

The biggest postwar fear was renewed inflation, a stock market crash, and a postwar recession like 1920, with 16 million servicemen coming home to no new jobs. Instead, new industries flourished, inflation quickly died, and we saw a 20-year bull market (1945-65: Dow 200 to 1,000) in a new Golden Era.

Dow Jones Industrial Index Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

I could sample any year, but I tend to examine round-number anniversaries to make it memorable. In 2021, I’ll look at several other years, since any historical year is a big challenge – with surprise endings.

In the original Rip van Winkle story, Rip slept 20 years. The best strategy in 1945 would have been to buy and hold stocks 20 years. That was also true in 1930, despite the interim bear market lows of 1932 and 1940 – or any 20-year segment of market history. I’ve always been a buy-and-hold investor. In April 2020, my young broker called me. I’m ashamed to say he convinced me to sell a good stock I had held for a long time. Since then, it has risen from $100 to $130. I won’t blame him. I’ll blame myself for listening.

Richard Thaler, Nobel-Prize winning economist at the University of Chicago, has authored six books on Behavioral Economics – about how we often subvert our best interest. He likes Rip van Winkle investing:

Famous Quote by Richard Thaler Image

All content above represents the opinion of Gary Alexander of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
A Weak Dollar is Generating a New Round of Inflation

Income Mail by Bryan Perry
It’s High Noon for High Yield Bonds

Growth Mail by Gary Alexander
Sleep Better with “Rip van Winkle” Investing

Global Mail by Ivan Martchev
Could Mortgage Rates Go Lower Than the Last All-time Low?

Sector Spotlight by Jason Bodner
Jesse’s Secret: Sitting on Your Winners

View Full Archive
Read Past Issues Here

About The Author

Gary Alexander

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. All content of “Growth Mail” represents the opinion of Gary Alexander

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