Stocks rebounded today on news that central banks around the world are poised to intervene (cut rates/provide liquidity) if economic conditions (markets) continue to worsen. Also, the realization that Covid-19, while certainly a very scary situation, may not end up being any worse than a really bad flu season (see Dr. Fauci’s article in the New England Journal of Medicine). Why is that the case? Well, we really aren’t aware of the number of cases that have existed where the patient got better and we didn’t even know that they had Covid-19. Remember, for the most part, we haven’t even had testing kits available for hospitals or doctors until this week.
For the day, the Dow Jones Industrial Average was up 1,293 points to close at 26,703. The S&P 500 was up 136 points to finish the day at 3,090. Gold was up $25 to trade at $1,591 per ounce, while oil was up $2.38 to trade at $47.14 per barrel WTI. Remember, sharp rallies like this are common after the damage we saw last week. Don’t read too much into it, just as we don’t want to read too much into natural corrections.
For those of you who weren’t able to join us on our conference call today, let me give you a quick summary of what we discussed. First of all, as we have noted, the market averages/stocks were very stretched with regards to momentum and valuation as we entered 2020, therefore very susceptible to any type of market shock. Covid-19 was that shock, and there was a lot of air underneath stocks prices. Before today, stocks had retreated about 12% from the market top posted just a couple of weeks ago. That 12% drawdown, is similar to the drawdowns we saw during the SARS and Zika scares.
We have been warning about the global economic effects that Covid-19 would have, and that realization began to manifest itself in lower stock prices 6 trading sessions ago. How deep the economic damage will cut and how long it will last is anybody’s guess. What we do know is that over some period of time we will get past it, as we have disease driven pullbacks in the past.
The 12% pullback before today, simply puts us back to a level where we were at in the fall of last year. That is really nothing more than a natural correction (albeit scary because of the unknown about Covid-19). To that end, your allocation mix should not be affected. If prices were to fall significantly from here, then we believe that would present a buying opportunity for those who have additional monies to invest, or are underweighted equities.
Also, with the 10 year Treasury Note yielding around 1%, a basket of great American companies/stocks, with an average dividend yield of about 3% appears a lot more attractive over a 10 year period.
Wow, it was quite a snapback rally today. We are likely in for some amazing volatility. Stay tuned.
Have a nice evening everyone.