After a brutal three weeks, global stocks saw a huge relief rally on Friday.
- The S&P 500 jumped +9.3%.
- The NASDAQ jumped +9.4%.
It was the best one day jump US stocks have seen since 2008.
The rebound was triggered by three powerful forces.
Trump press conference: The administration ramped its response to the virus, declaring a national emergency that will release additional funds. Drive thru testing is live in New York city and will expand across the country. These more are giving the market a little more confidence.
Private sector is helping: The White House is getting help from the best US companies. Amazon, Apple, Google, Facebook, Microsoft and Twitter were on a conference call with top government officials. Google is developing online tools for healthcare workers.
Governments dropping interest rates and launching stimulus packages to support the market: Central banks have already been dropping interest rates, which is usually good for the economy and stocks. Behind the scenes, many global governments including the US are developing big fiscal stimulus packages to support the economy. These have not officially been announced yet – but I expecting to hear news this week and that should give stocks another boost.
After Friday’s 10% spike the S&P 500 is down 20% from the 52-week high.
Here is a 12-month chart for the S&P 500. You can see how intense the sell off was – and the big jump on Friday.
What Should We Expect from Stocks Moving Forward?
Now, the key question everyone is asking: Is this the bottom or will we see another plunge lower?
Here’s my call.
In the short run I am expecting more volatility and uncertainty.
However – I think the worst of this sell off is over. I think we have already seen peak fear and I think we have seen the bottom of this move – which was 30% down.
30% is a huge drop in the stock market. A ton of bad news has been priced into stocks. That includes a global and US recession.
I believe the US is in a recession right now because of coronavirus and it will last for two quarters. The US economy will emerge from this recession in the fourth quarter and that will set up the global economy and global stocks for a great year in 2021.
Meanwhile – the masses are now taking the virus very seriously – and that is very good news for the economy and stocks.
- Schools are closed.
- The NBA shut down.
- Concerts are cancelled.
- Large gatherings are banned.
These drastic measures were necessary and I believe they will be very effective in drastically slowing the spread rate. Containment is key and any progress is good for the economy and good for stocks.
I think we are already past peak fear on this story and I see the tide shifting very quickly. Getting the general public on board with playing defense was the biggest swing factor.
I could be wrong about the short run – but no matter how coronavirus plays out, in the long run I expect stocks to recover just like they always have – through world wars, depressions, and recessions.
Two Portfolio Strategies for Investors to Consider
Recent volatility made investors nervous. Today I am going to share two portfolio strategies to help navigate a volatile market.
Sit tight, do nothing: For stock holdings, just sit tight and ride it out. The risk is that stocks continue to fall. But if stocks rebound, the portfolio will too.
Sell 50% of Stocks: Get more defensive and trim stock holdings. The risk is that stocks rally. The potential benefit – if stocks fall further – avoid the loss and use cash to buy low.
This is the Bottom Line
Stocks saw a big relief rally on Friday. The 10% rally was the biggest one-day gain since the financial crisis of 2008.
US stocks are still down 20% from the 52-week high, but looking forward I’m optimistic we have seen peak fear and that stocks have already bottomed out.
The general population is now taking the virus very seriously and that is a good things because it will reduce spreading. Any news on slower spread rates is good news for the economy and stocks.
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.