To be clear on my views right now, the\neconomic impact from supply and demand disruptions will result in negative\ngrowth for Q2 and cause a recession. Couple this with the emotional response to\nuncertainties surrounding the pandemic, and it is very normal for stock prices\nto be heading lower. I expect more market volatility in the coming weeks, but I\nalso firmly believe that if your financial goals and objectives have not\nchanged, then your portfolio allocation should not change either. Making\nportfolio adjustments in the midst of severe volatility is almost always a\nrecipe for major mistakes. The history of financial crises and recessions very\nclearly shows that the best course of action is to continue to hold equities\nthrough the recession as opposed to trying to time the market. An investor will\nmake more money holding equities through a bear market than trying to time the\nbear market, in my view.<\/p>\n\n\n\n
I still very much\nview the current downside risk as event-driven \u2013 not as a systemic risk\nthat will lead to a financial crisis. <\/em><\/strong>Governments and central banks are\nintervening to stabilize the economy and capital markets; the severity of the\noutbreak in China is abating quickly (signaling it can be contained), and the\nbanking sector is very well capitalized.2<\/sup> In my view, this looks and\nfeels more like September 11, 2001 than it does the 2008 financial crisis. In\nboth of those cases, the public experienced shock, confusion, and anxiety in\nthe absence of information available to make rational evaluations. It takes time,\nbut the information will come, the crisis will abate, and the markets will\nrecover. As it has been the case with almost every historical bear market – if\nyou do not have to sell for liquidity reasons, the best course of action is to\nhold through a bear market. If you have cash on the sidelines \u2013 buying now is\nnot necessarily a bad idea, in my view.<\/p>\n\n\n\n ______________________________________________________________________________<\/p>\n\n\n\n In Times Like These, Focusing on Data and Not Media Hysteria is Key!<\/a><\/strong><\/p>\n\n\n\n While we\nare waiting on more information about the coronavirus, we can focus on the data\nwe have on the markets. Instead of giving into media hysteria that causes\ninvestors to make knee-jerk responses not based on data and fundamentals but on\nemotion, I recommend staying calm and focusing on the fundamentals. To help you\ndo this, I am offering all readers our just-released Stock Market Outlook\nreport. This report contains some of our key forecasts to consider such as:<\/p>\n\n\n\n If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0 ______________________________________________________________________________<\/p>\n\n\n\n Comparing the Current Pandemic to the Spanish Flu Pandemic of 1918 and 1919<\/strong><\/p>\n\n\n\n World War I was\nraging when the Spanish flu pandemic arrived, infecting some 500 million people\nworldwide (27% of the population) and killing roughly 40 million people,\nincluding 675,000 in the US alone. <\/p>\n\n\n\n There are a lot of\ntakeaways from the Spanish flu pandemic\u2019s effect on the world, but the stock\nmarket\u2019s response may be the most surprising. If you look at the Dow Jones\nIndustrial Average during the apex of the outbreaks (there were a few waves) in\n1918 and 1919, you find that the index rose by just under 17% with dividends\nreinvested. Economic production from the war no doubt boosted activity during\nthat time, and euphoria when the war ended in 1918 likely also contributed. <\/p>\n\n\n\n In all, this history\nlesson should serve as a stark reminder that the world can endure a world war\nand a lethal pandemic and still fight and\ngrow through it. <\/em>When the final wave of the Spanish flu subsided in\nFebruary 1919, the market surged some 50% through November of that year. When a\nfear fades, stocks can surge. <\/p>\n\n\n\n This is a Good Reminder of How the Stock Market Works<\/strong><\/p>\n\n\n\n In times like these,\nit\u2019s also important for investors to take a step back and remember how the\nstock market works. Investors get long stretches of gains when the market\ntrends higher (approximately +400% in this most recent bull run), and then from\ntime to time, we experience clusters of scary downside volatility and bear\nmarkets when 20+% is quickly wiped out.4<\/sup> But then when the crisis\nfades and fears abate, the next twelve months consistently delivers a strong comeback:<\/p>\n\n\n\n Long-term investors\n\u2013 and hopefully the folks who read my columns regularly \u2013 know that during a\npanic, an investor should look to snap up bargains as almost everyone runs for\nthe exits. It\u2019s the strategy of being \u201cgreedy when others are fearful,\u201d as\nWarren Buffet put it. It sounds easy in theory, but it is very difficult in\npractice. In my view, now is a good time to buy stocks \u2013 it\u2019s a better time\nthan almost any other time since the \u201908 crisis \u2013 it\u2019s just psychologically\nalmost impossible to implement. The history of the US economic system is a\nhistory of the triumph of the optimists. I believe the panic we see today will\nrecede and money will transfer from those who panic to those who have a steady\nhand.<\/p>\n\n\n\n The issue is that\nthere is no way to know when <\/em>the\nmarket will stage its strong recovery, though history does tell us that it\nusually happens in close proximity to the scariest down days (much like the +9%\nsurge we saw last Friday).6<\/sup> Here\u2019s a key stat to remember: over the\nlast 20 years, 24 of the 25 worst trading\ndays were within one month of the 25 best trading days.7<\/sup><\/em> This\nspeaks to the perils of trying to time exit and entry points during heightened\nvolatility like we\u2019re seeing right now. Doing so means potentially \u2013 if not\nprobably \u2013 missing out on the market\u2019s best rallies that every equity investor\nneeds to drive long-term investing success.<\/p>\n\n\n\n Case in point: If\nyou had invested $100,000 in the S&P 500 index on January 1, 2000, it would\nhave hypothetically grown to $324,019 by December 31, 2019. This $100,000 investment\nwould have endured the tech bubble bursting and the devastating 2008 financial\ncrisis, and you would have still come out way ahead. <\/em><\/strong><\/p>\n\n\n\n But if you decided during\nthe tech bubble and 2008 financial crisis that you wanted to trade in and out\nof the markets to try and evade downside, chances are you would have missed\nsome of the best rallies the market had to offer. Missing the 10 best days\nmeans your $100,000 would have only grown to $161,706. Missing the best 25 days\nwould have meant losing money, <\/em>with\nyour investment shrinking to $82,256.8<\/sup> Don\u2019t try to time the market!\nStaying invested even in dismal-seeming times is the correct approach, in my\nview. <\/p>\n\n\n\n Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n As I mentioned before, volatility is almost certain to persist in the near term and the situation by the numbers will get worse before it gets better, in my view. But all of the uncertainty in the world cannot change the fact that bull markets follow bear markets, and bull markets almost always last longer with moves of far greater magnitude than the downside experienced. It\u2019s just a matter of being patient now. <\/p>\n\n\n\n
IT’S FREE. Download the Just-Released April 2020 Stock Market Outlook<\/a>3<\/a><\/sup><\/strong><\/p>\n\n\n\n![\"\"](\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2022\/02\/image-1-of-1-2.png\")