How much lower?
That is the question everyone is asking after stocks logged one of the biggest weekly declines ever.
Despite the carnage – today I am going to reveal my forecast for the next few weeks and why I am optimistic the global economy and stocks will recover sooner than most expect.
Global stocks were off to a decent start early in the week. But a wave of selling hit the market on Thursday and Friday, pushing global stocks into the red.
The S&P 500 fell 15% on the week. The leading index is now down 32% from the 52-week high. As you can see on the chart below this has been an enormous pullback that came out of nowhere.
*chart from tradingview.com
How bad has this pullback been? One of the worst ever.
The 15% weekly decline was the worst since the financial crisis of 2008. And the S&P 500 has erased all of its gains from the last three years and is now trading at the same price from early 2017.
I don’t care if your a short-term investor, long-term investor or an alien. Those numbers are discouraging.
Is there any hope left?
Today I am going to reveal four reasons I think the global economy and stocks are going to recover a lot quicker and sooner than most expect.
Four Triggers that Could Save the Global Stock Market
Stocks are the most oversold in five years: The relative strength index (RSI) is a technical indicator that measures when a stock is oversold or overbought. The RSI is signaling that the S&P 500 is the most oversold its been in the last five years. The last time the index was this oversold stocks saw a huge rebound and big gains in the following twelve months.
*Chart from tradingview.com
Trillion dollar stimulus plans: Governments and central banks all around the world are taking aggressive action to keep the economy going. For example, the Fed dropped interest rates to zero for the first time in five years. This weekend US lawmakers are working on a $2 trillion rescue package.
Slower spread rates: With the general public getting much more serious about the virus and the quarantines I think we are going to start seeing a slower spread rate. Any good news about spread rate would be very good for stocks.
Peak fear: I think the public has already achieved peak fear. The grocery store is still open. I think the public is quickly becoming less sensitive to the coronavirus news cycle.
Vaccines news: It’s going to take months, but the best pharma companies in the world are racing to develop a vaccine.
There is still plenty of uncertainty – but no matter how it plays out the global economy and stock market has always recovered from the worst global events such as world wars, depressions and recessions.
What Should we Expect Moving Forward?
In the short run I am expecting more volatility. But in the long run I think stocks are close to the bottom that the top of this pullback.
I am expecting to see more stability come into the market in the following weeks.
Four Portfolio Strategies to Manage Market Volatility
Add Cash to market: For long-term investors the pullback is an opportunity to buy low. There are some really great deals in the stock market right now. Investors with a lot of cash are in a good position right now.
Sit Tight: 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 25% of Stocks: Get 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.
Sell 50% of Stocks: Get even 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 have been smashed.
But they look oversold in the short run.
And in the long run I am confident stocks will recover like they always have.
Don’t try and be a hero in this volatile market. Make small, smart moves toward your long-term goals.
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.