After a brutal four weeks, global stocks finally broke the losing streak and had one of their best weeks ever – with the S&P 500 up 16% from the recent low. Now, investors want to know – is this a head fake or is the selloff over? Today I am going to reveal the answer and provide guidance on how to move forward.
Global stocks gave investors a reason to cheer this week, delivering a strong relief rally in one of the best weeks ever.
Here are some more details from bloomberg.
The S&P 500 Index climbed 10% this week (16% from the low), its biggest gain since March 2009, on the strength of a record three-day rally. The Dow Jones Industrial Average had its best week since 1938, even as all but two of its 30 members declined Friday.
Why Did Stocks Jump?
Stocks jumped for the reasons I’ve been discussing for the last few weeks.
Stocks were 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. I am expecting markets to be whipping up and down in the next few days, weeks and even months.
However – in the long run – I think we’ve already seen the bottom of this move.
The coronavirus situation is definitely serious. It’s a health risk and the impact on the global economy has been enormous.
However – we just saw a 35% drop in stocks in four weeks!!! That was one of the biggest drops in the history of the stock market.
A ton of bad news has been priced into stocks. Expectations are now super low. Investors are scared shitless. Trust me i know – i talk to dozens every week. Fear just hit a multi-year high. And when fear hits a multi-year high – this is usually the place where the rebound begins.
With tons of bad news priced into stocks, moving forward, any good news on coronavirus is going to have a very positive impact on stocks.
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
After one of the worst four weeks ever stocks finally delivered a relief rally – the S&P 500 jumped 16% this week, one of its best ever. Looking forward I am expecting more stability in stocks because investor sentiment is super bearish and this is the place where a rebound and new rally usually begins. In the meantime, the S&P 500 is still trading 25% below the 52-week high. I am seeing tons of great opportunities out there right now.
I’ll repeat what I said last week – 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.