The SP500 has dropped 34% since its peak on February 20th amid the Corona Virus turmoil. I believe now is the time to begin buying stocks once again.
We are in the midst of the greatest market panic comparable only to 1929, 1987, and 2008. The level of fear has reached a climax and people will begin realizing that the world will not come to an end. We are very close to this inflection point where panic gets dialed back down and people begin feeling just a little bit better. The market is a discounting mechanism and it will turn back up long before the actual number of Corona virus cases peak. We are now entering the parabolic phase of the virus where you will see total infection numbers accelerate very rapidly as awareness of the virus and testing causes a big spike in the numbers. Just like all parabolas they will fall just as fast. Take a look at this chart:
Here we have a chart of deaths in 1918 around the world and you can see a big spike in the rate in October of 1918 but look what happens only 1 month later. The numbers drop off significantly. Keep in mind there was no television or internet during this time to really scare people and the health care system was probably worst then a 3rd world country of today. You can pull up any other epidemic and you will see the same phenomena. (SARS, Ebola, bird flu) Once people realize they can die you will be surprised how people will change their behavior. Once your neighbors, friends, family stop going out you will too. That is exactly where we are today. So yes, the numbers will continue to move up the next several weeks, but they will slow significantly by early to mid-April before dropping off in May as most people are cured.
China and South Korea are already in the stage where infections have come to a halt and very likely Europe and Italy are not too far behind. The market will begin a new rally phase once it begins to discount what I have just explained that infections will stop going up. Major central bank (FED) intervention as well as fiscal rescue program announcements over the last few weeks have been met with selling. The reason is the market right now only cares about 1 thing: when will the rate of infections peak? Once the market sees the light at the end of the tunnel and I do believe we are very close, I am expecting a major rally of perhaps 15%-20% in a short time frame perhaps a few weeks’ time. Regardless the damage has already been done as our Government had a chance to nip this Virus in the bud back in February but chose not to heed the warning from China. Instead we are too late in the fact that the economy will feel this for some time to come. I would expect another wave of selling to come after we get a major relief rally in the near future. I will write an update once this next rally phase is complete.
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