Just like they did here yesterday, stocks on Wall Street lost ground overnight but what could you expect when the Dow Jones index was up 18.5% in four days?! And despite the disappointing (though understandable) drop, the Dow had its best week since the 1930s.
The good news is that the US$2 trillion rescue package was passed by the House.
A stock like Boeing went from US$97 to US$180 in a week, which shows how crazy and non-normal this stock market is. And it’s why you have to grin and bear it, until the usual uptrend resumes.
What I have liked this week is the former Fed boss, Ben Bernanke’s take on what’s going on. Bernanke said what we’re in is more like a natural disaster that has rocked financial markets. He doesn’t see this as a Great Depression on the make. And his academic history shows he is regarded as an expert on the Great Depression.
That’s a big like!
But the big questions for all of us is: are we making a bottom? And is the worst of this market crash behind us?
A positive sign is that the Fed has got to work to bring down the spreads in credit markets, which got so big that they helped worry the stock market down to the levels we saw over the past couple of weeks. That helps create the bottom.
In these strange times I can’t use data such as 3.3 million US workers who lost their jobs and lined up for jobless insurance payments. In normal times, this would be a key indicator of the future but it’s probably only a temporary number. It tells you how a lockdown cruels an economy but it’s just a number on what we already knew would be mad, bad and dangerous for anyone living in such an economy.
Right now, the stock market and other markets, such as the bond market, are windows on our potential future. And this week the view got better.
My job is to work out if it can keep improving. I know that will rest on the critical data on Coronavirus infections and deaths, especially in the USA and Europe. We are important but we won’t be key market drivers. And I suspect we’ll do OK on an international comparison basis. That’s the current case, as the chart below shows. Let’s hope it’s sustained.
Source: PRC National Health, Bloomberg, AMP Capital
We can’t be too complacent and the next two weeks will show us if our version of a lockdown works.
Bear markets often retest their previous lows and how they respond to these tests can determine how long the down-market persists. Two big influences on whether we see Wall Street go back to previous bottoms will be the run of virus data and the severity and longevity of the lockdowns.
If the data improves quicker than expected and no more serious lockdowns are needed, then we’ll rebound faster than is likely. The next two weeks will be critical and it’s why I expected a sell off on Wall Street overnight.
At the end of this piece, I will give you the best news I have on this crisis, which has given me some measured/cautious joy.
Solita Marcellis (the Deputy CIO Americas for UBS in the US) told CNBC that “it will be volatile over the next two weeks to month as we wait for data around the virus…”
That’s the investing world we live in now.
To the local story, briefly, the S&P/ASX 200 Index actually gained 25.8 points (or 0.5%) for the week to finish at 4842.4. This chart from the AFR graphically shows what we lived through and contemplated different scenarios for lockdowns, following the national outrage of Aussies not taking the Coronavirus seriously and lounging on Bondi Beach!
Amidst all the anxiety, this head-in-the-sand attitude ramped up the lockdown decisions from the Government and didn’t help the overall market index fight gravity.
That said, some stocks found favour, with Afterpay up 53.54%, Corporate Travel Management up 45.63% and Qantas 31.78% higher.
Big losers were Southern Cross Media, off 63.33%, Flight Centre down 49.46% and Webjet 45.66% lower!
Blue chips were on the shopping list for gutsy investors as BHP lifted 7.5%, Sydney Airport 24.7% and Aristocrat Leisure popped 15%, with housebound workers expected to do some online gambling!
Summing it up for the AFR was Greg Bundy of Federation Asset Management. “We were clearly oversold in borderline panic mode, and understandably so,” he said. “And I think what we’re starting to see is some more rational discussion around the numbers. Slowly but surely, investors are looking, believe it or not, past 2020 and starting to think about 2021.”
I think there’ll be more buying opportunities and smarties tend to be buyers when everyone else wants to sell but remember this: it’s really hard to time the market. And because the critical data will be linked to the spread of a virus (where I’m no expert), we are in worrying waters for the short term. However, in the long term, this chart of stocks will prevail.
The blue line is our market and it shows how we rebound out of crashes and our wealth rebuilds. This chart goes from 1970 to 2009, one year after the GFC and $10,000 had still become $453,165, despite all those crashes you can see.
When the short term scares you, remember you are long-term investors.
The good news overnight is that Wall Street hasn’t collapsed but has had a measured pullback after a huge week of gains. That’s a good sign. It shows the US stimulus package has slowed down the pull of gravity. We now need to see virus data improve to permit another convincing bounce in stock prices. (By the way, my usual look at the week’s data from what I liked and didn’t like has been dropped this week because economic data is inconsequential in these crazy times. Instead, I’ve looked for likes and dislikes that help me understand when the worst for stocks is over.)
Likes
- The German’s stimulus package, was, wait for it, 30% of GDP! That’s a serious rescue.
- The Fed’s balance sheet has surged to US$5 trillion and is miles bigger than its effort in the GFC. This makes me think there is overkill and commitment that increases the chance to turn this crisis around faster than the GFC.
- The rescue package gives US$454 billion to the Fed, which in turn can lend up to US$4.5 trillion!
- Like ours, the US stimulus package focuses on making loans available to small and medium-sized businesses.
- The Trump team and Congress have implied if this rescue package isn’t doing enough, more will come.
- Locally, a third stimulus package is coming to fix up some holes in the first two packages. It will cover rent for tenants and changes to the income test to ensure those sole traders who lose business and those who lose their jobs but their partners are still in work, will get access to supportive, welfare income.
Dislikes
- Some people telling me that they want to go to cash. Remember this over the past seven years for US stocks: if you missed the best 10 days, your overall returns would be halved and that’s why not getting in and out and trying to time the market is a risky play.
- Microsoft’s Bill Gates thinks the US has to be locked down until May! I hope that won’t be necessary.
- The fear that after the lockdowns are over, the comeback of the economy could be slower than expected. Travellers, movie goers, event attendees and footie crowds could be reticent to go back to normal and that’s why some politicians talk about this lasting six months.
- The run of infection and death rates worldwide.
- The non-experts out there all running with the worst-case scenarios, based on guessing and speculation fed by a media that can’t help but focus on negative stories.
‘Joye’ to the world!
Assuming, for example, that Australia and the US are only half as good as South Korea at containing the virus, we should be able to observe a decline in new infection numbers by the second half of April. This could be an important inflexion point for markets in so far as they’ll be able to see across to the other side of the fiscal and monetary policy “bridge” that has been belatedly built by governments.
BREAKING NEWS!
The World Health Organisation has started an historical trial in Norway and Spain of four of the most promising drugs to fight COVID-19. This could be a game changer. Fingers crossed.
One last thing…
Webinar: How we are investing during the Corona crisis.
On Tuesday, I’ll be hosting a LIVE webinar with portfolio manager Shawn Burns and Paul Rickard to discuss how we’re managing the Switzer Dividend Growth Fund (ASX:SWTZ) portfolio during the current market volatility. Click here to register for this session .
And, click here to register for next Friday’s webinar, where Paul and I will share how we’re responding to the coronavirus.
The week in review:
- If non-essential businesses are being locked down, then the normal running of commerce is being shut down too. How fair is it to keep the business of the stock market open?
- Everyone wants to buy beaten up quality stocks at good prices, but the big question to answer is: what are the key indicators you need to watch?
- Last weekend, the Government announced several initiatives to ease the financial impact of the Coronavirus on retirees, investors and superannuants. Here’s 4 of them.
- Tony Featherstone has narrowed his list to 5 companies for income investors looking to put fresh capital to work.
- James Dunn put forward some potential pockets of value: 10 in the REIT space and 2 in the infrastructure space.
- The landslide of upgrades continued in this week’s first and second Buy, Hold, Sell – What the Brokers Say, with a total of 79 upgrades across the two editions and 17 downgrades.
- Michael McCarthy, the Chief Market Strategist at CMC Markets, had no buys to report this week.
- In Questions of the Week, Paul Rickard answered questions about Westpac’s dividend cut, the transfer balance cap and CBA’s dividend re-investment plan.
On our YouTube channel this week:
- How are experts playing the sharemarket? Buy-time? Or not yet?
- Will coronavirus crush real estate prices?!
Top Stocks – how they fared:
The Week Ahead:
Australia
Tuesday March 31 – Weekly consumer sentiment (March 29)
Tuesday March 31 – Private sector credit (February)
Wednesday April 1 – CoreLogic home prices (March)
Wednesday April 1 – CBA & AiGroup manufacturing index (March)
Wednesday April 1 – Building approvals (February)
Wednesday April 1 – Reserve Bank Board meeting minutes
Thursday April 2 – Job vacancies (February)
Friday April 3 – Retail trade (Final, February)
Overseas
Monday March 30 – US Pending home sales (February)
Tuesday March 31 – China Purchasing manager indexes (March)
Tuesday March 31 – US Case-Shiller home prices (January)
Tuesday March 31 – US Consumer confidence (March)
Wednesday April 1 – China Caixin manufacturing index (March)
Wednesday April 1 – US ADP employment change (March)
Wednesday April 1 – US ISM manufacturing index (March)
Thursday April 2 – US International trade (February)
Thursday April 2 – US Factory orders (February)
Friday April 3 – China Caixin services index (March)
Friday April 3 – US Employment (March)
Friday April 3 – US ISM non-manufacturing index (March)
Food for thought:
“Invest for the long haul. Don’t get too greedy and don’t get too scared.” – Shelby M.C. Davis
Stocks shorted:
ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short, which could suggest investors are expecting the price to come down. The table shows how this has changed compared to the week before.
Chart of the week:
This week, AMP Capital’s Shane Oliver shared the following chart that shows how different parts of the economy have been impacted by the coronavirus:
Top 5 most clicked:
- Buy, Hold, Sell – What the Brokers Say – Rudi Filapek-Vandyck
- 4 measures to help retirees, investors and superannuants – Paul Rickard
- The case for closing down the stock market – Peter Switzer
- What to watch if you want to buy beaten up stocks – Peter Switzer
- 5 income stocks to “consider” – Tony Featherstone
Recent Switzer Reports:
Monday 23 March: Should the stock market be shut down?
Thursday 26 March: What am I watching before I buy?
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
