Wall Street’s Terrible, Horrible, No Good, Very Bad Day
I love to read to my twin grandsons, who are toddlers. One of their favorite books is the children’s classic Alexander and the Terrible, Horrible, No Good, Very Bad Day. Observing the market’s free fall yesterday, that title popped into my head.
The financial markets lately have suffered several bad days, but Thursday was a terrible, horrible, no good, very bad day. U.S. stocks cratered yesterday, with benchmark indices posting their worst single day drop since “Black Monday” in 1987.
The Dow Jones Industrial Average, the S&P 500, and the NASDAQ all fell more than 9% yesterday. Decliners outnumbered advancing issues by a more than 45-to-1 ratio on the NYSE, where volume hit an all-time high. The Dow dropped 2,353 points. Global stock indices plunged as well.
The coronavirus has cost global stocks $16 trillion. Is it time to aggressively hunt for equity bargains? I wish I could say yes, but trying to time a market bottom is foolhardy. An ostensible recovery could merely be a “dead cat bounce.”
For at least the short term, the outlook appears bleak. But even under these dicey conditions, you can still make money. Below, I’ll steer you toward a play that’s positioned to beat the bear market and generate handsome profits.
Far from contained…
As of this writing on Friday morning, the coronavirus has infected more than 126,000 people around the world, the vast majority in China, and killed 4,624.
The health contagion has evolved into a financial contagion. The coronavirus is far from contained and it’s wreaking economic damage.
Infections and deaths are likely to follow an upward trajectory in the U.S., clobbering business activity, quarterly operating results, and share prices. The outbreak has crippled industry, travel, entertainment, and sports around the world.
In his televised address to the nation Wednesday night, President Trump announced restrictions on certain travel from Europe to the U.S. Instead of calming markets, the move stunned investors and travelers and sent stocks into yet another tailspin.
In pre-market futures trading today, stocks were poised to open in the green on hopes that central bank intervention would stabilize markets.
The Federal Reserve intervened in financial markets Thursday for the second day in a row and the third time this week, by drastically boosting asset purchases to the tune of $1.5 trillion. The U.S. central bank is attempting to bolster investor confidence with a massive liquidity injection.
The Fed noted in a statement: “These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” adding that the operations “will be adjusted as needed to foster smooth Treasury market functioning.”
The Fed’s counterpart in Europe, the European Central Bank (ECB), implemented stimulus measures Thursday, including an increase in bond purchases.
The known unknowns…
The 11-year-old bull market is officially dead. That much we know. The Dow and S&P 500 have declined more than 20% from their recent highs.
To borrow a phrase from a former U.S. Defense Secretary, we face several “known unknowns.” How bad will the rout get? How long will the bear market last? It’s also unclear whether the coronavirus crisis will kill the economic expansion, which is the longest lasting in the post-World War II era (see chart).
In a rare bit of positive news, the Labor Department reported yesterday that initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 211,000 for the week ended March 7. Jobless claims have declined for two straight weeks. Economists had forecast claims rising to 218,000 in the latest week.
Those employment numbers are cold comfort, though, because layoffs due to the coronavirus are expected to soon become apparent.
Meanwhile, thanks to the oil price war between Saudi Arabia and Russia, the energy sector is in chaos. Oil prices have fallen precipitously in recent days and now hover at about half their level at the start of the year. Thousands of workers in the U.S. energy patch are suddenly finding themselves on the unemployment line.
In the coming week, the oil bear market is likely to get worse. Morgan Stanley last week updated its oil demand forecast for 2020, saying it expected demand to be close to zero in China because of economic damage from the coronavirus. The Trump administration’s travel ban exacerbates the woes of the travel and transportation industries, further dampening oil demand.
The golden rule…
These terrible, horrible, no good, very bad trends add up to wonderful, very good conditions for gold prices. The yellow metal thrives during times of uncertainty.
Gold prices recently have soared. The price of gold was about $1,250 per ounce a year ago; it now hovers at $1,600/oz. Gold prices probably will continue rising, as each new day brings a fresh batch of dire headlines
I prefer the stocks of gold miners, which typically confer gains that are exponentially greater than those of gold funds or physical bullion. For our investing team’s favorite gold mining play, click here now.
As a rule, every portfolio should hold gold as a hedge. Chances are, you’re saving for retirement. With that in mind, keep your eye on the long game. Don’t panic and throw your investment strategy out the window. Stick to your original goals.
And always be wary of the herd mentality. Leading up to the market rout, the Wall Street consensus was bullish and the markets kept hitting new highs. Nosebleed valuations just didn’t seem to matter. We’ve just been reminded that they do matter.
John Persinos is the editorial director of Investing Daily. You can reach him at: firstname.lastname@example.org