The first quarter was the worst start of any year. Stocks hit a record high in mid-February, then fell 34 percent only to rally 21 percent in three days. The S&P 500 ended the quarter 24 percent off its high. That’s understating the market’s weakness. The S&P 500, a measure of large-company stocks, did better than most other indexes. While the S&P 500 lost 20 percent in the first quarter, mid-cap value fell 36 percent, mid-cap growth lost 25 percent, small-cap value fell 38 percent, and small-cap growth dropped 29 percent. And those losses came in about five weeks!

I’ve lived through five crashes, most recently in 2008-09. This one was like no other. Many riskier securities outperformed those that are typically safer. In a bear market you don’t usually want to own technology stocks (remember the internet bubble?), but they performed best. At the same time fixed-income vehicles, with the exception of Treasurys and other low-yielding debt, fell to multi-year lows. That includes corporate debt, high yield bonds, and many preferred stocks. 

The market plunged because the economy’s shutdown was completely unexpected. Anticipated events, on the other hand, are already reflected in stock prices. For example, on March 27 the $2 trillion stimulus package was signed. But on that day the Dow fell 915 points instead of rallying. Why? Investors anticipated the relief package would eventually pass, which is why stocks rose 20 percent in the days before the signing of the bill. On March 26 a then record 3.3 million Americans applied for unemployment benefits. On the same day, the Dow rose a whopping 1,351 points. Why? Because investors knew the report would be bad. It’s not today’s headlines that matter, it is tomorrow’s that count. Investing is about expectations. 

When everyone is optimistic it is easier to have a downside surprise. When pessimism prevails, the surprise will surely be to the upside. People are pessimistic now. Wall Street believes GDP in the second quarter will shrink at an annual rate of 20 percent, or even worse. That was unimaginable just two months ago. Unemployment will soar and the expected death count from the virus will be beyond horrible. With expectations so low, all that it will take to move stocks higher is for the news to be less bad. That’s not a high bar.

It was disheartening to watch stocks fall day after day. That environment ended when the market’s low came over two weeks ago. Spirits will quickly soar along with prices in anticipation of better days once signs appear that the worst of this has passed, probably even before. The news simply needs to be less bad. We have faced recessions too many to count, the Great Depression, inflation, wars, 9/11 and the financial crisis. We always recovered and went to new heights. And we will again. Don't doubt it.