It’s been a brutal week for global stocks as coronavirus continues to weigh on the global economy and investor sentiment.
- The S&P 500 is down 12.5% in the last five days.
- The NASDAQ 100 is down 13%.
Take a look at the decline in the chart below.
Chart from Tradingview.com
As you can see the decline has been very fast and very sharp.
How bad has it been?
According to data from Factset, this is the Dow’s 14th worst 5-day sell off in 124 years.
What Should We Expect Moving Forward?
The coronavirus is weighing heavily on the global economy and investor sentiment. This is a very real threat and for the time being the outlook is uncertain.
However – there are still reasons to be optimistic.
#1 The stocks that fall the most in a bear market are also the stocks that rally the most in a rebound: In this case, growth stocks such as Apple and Google have been hit pretty hard. That tells me that when, not if the market rebounds, these stocks will jump higher.
Speaking of a rebound – after a brutal week US stocks are starting to look very oversold.
#2 This is the second most oversold the S&P 500 has been in the last two years: The last time the index was this oversold was the fourth quarter of 2018 after falling 20%. That sharp decline turned out to be a great buying opportunity and it set the stage for a huge stock rally in 2019.
Cahrt from INO.com
#3 Central banks will probably be dropping interest rates: I am expecting the Fed and other central banks to be dropping interest rates and launching other financial stimulus much sooner than later.
That’s exactly what the market is expecting after this week.
Here are some more details from CNBC.
Futures pricing as of early Thursday afternoon was for a 68% chance for a quarter percent point cut in March, according to the CME FedWatch tracker. Traders indicated a near-50% chance of a second cut in April and a 74% chance that the move comes no later than June. Finally, the market sees about a 63.5% chance of a third reduction in December that would take the central bank’s benchmark short-term lending rate to a target range of 0.75%-1%.
Market pressure heats up on the Fed with at least three cuts now priced in for 2020
Stay Patient – Don’t Panic – I See Opportunity on the Horizon
There’s no question it’s been a brutal week for the stock market. Coronavirus remains a very real threat.
However – stay patient, don’t panic.
History has proven that sharp declines create great opportunities for investors who stay calm and stay focused.
The stock market has never failed to recover from even the worst events. That includes world wars, depressions, recessions and the financial crisis of 2008. I think that’s what will happen here once the market settles down and gains more clarity on coronavirus.
For younger investors with cash on the sidelines – this is the time to start thinking about deploying capital into stocks that have been beaten down in the last week.
Disclaimer: This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.
