By Matt McCallMar 03, 2020
I’m writing to you today from sunny Clearwater, Florida, where I look forward to catching a few Philadelphia Phillies spring training games over the next several days.
I flew down this morning, and guess what?
I didn’t hear even one mention of the coronavirus. The boarding procedure was completely normal, and I had no concerns getting on a plane full of people. From what I could tell, nobody else did either.
As we were in the middle of a smooth flight, the Federal Reserve announced an emergency 0.5% interest rate cut… because of the coronavirus nobody on the plane talked about.
The market jumped immediately – with the S&P 500 up 1.5% at its peak – only to turn negative within 15 minutes.
More volatility, confusion and chaos. So, what does it mean for investors?
The last time the Fed lowered rates between meetings was in 2008 during the financial crisis, not long after Lehman Brothers collapsed. The economy was truly in trouble then, but today’s cut was more preemptive protection rather than needing to pull the economy out of a ditch.
In fact, Federal Reserve Chair Jerome Powell said the U.S. economy still looks healthy, but he did acknowledge the change in sentiment.
In other words… fear.
The big fear is that the world’s reaction to the coronavirus will disrupt what’s called the supply chain. If the world’s manufacturers, many of which are based in China, have to temporarily cut back or cease operations, the supply of certain goods could be impacted. That, in turn, would slow down the economy. Today’s rate cut is to try to soften any potential impact.
I would say the move was somewhat expected, though maybe not today specifically. There were plenty of rumors that the Fed was going cut. Friday’s late surge and yesterday’s huge rally – the largest one-day point gain for the Dow in history – were both in anticipation of a rate cut. But with the next scheduled meeting in just two weeks, the Fed could have waited until then. I think that would have been a better, calmer way to do it.
While the expectation of a cut was why stocks rallied yesterday, that was also why stocks quickly sold off today after the initial rally. We saw the classic “buy the rumor, sell the news” reaction. The market was already pricing in a 100% chance of a 50-basis point cut at the meeting in two weeks.
Today’s move lowers the Fed Funds rate to 1.25% from 1.75%. At this point, the market prices in a small chance that rates go all the way to zero by the end of the year, but I just don’t see that happening.
Lower rates could ease some fears of the economy getting hit too hard, but I think the Fed to a degree fueled a much larger issue.
The government and media need to stop the fear mongering and allow people and companies to go about their business.
I have been pointing out for weeks that far more people have died in just the U.S. from the seasonal flu than have died around the entire world from the coronavirus. It’s actually not even close. A recent editorial in The New England Journal of Medicine from leading experts said that the death rate from the coronavirus could end up being similar to a severe flu season.
Every death is a tragedy, and we all hope the virus is contained and goes away soon. Same with the flu. But in the meantime, the media creates scary headlines because they increase viewership and readership, which in turn leads to more advertising dollars.
In fact, as I was writing this, I came across this BS headline on CNBC…
The fear mongering continues.
We as investors need to push the “pause” button on our emotions and think logically about what’s going on. We know to expect more volatility in the coming weeks, but we also know that this volatility creates amazing long-term buying opportunities.
As hypergrowth investors interested in big profits over time, we can use the wild short-term swings to buy great stocks at a big discount. Last week, we added a new stock to our Investment Opportunities portfolio that I had been watching since it went public in December. A 20% pullback from the high gave us an opportunity too good to pass up, and we pounced.
When a solid, long-term hypergrowth stock pulls back 20% or more in a week, it’s like getting the car you’ve wanted at a 20% discount. Most of us would be all over that. I am watching other opportunities that I hope to be able to tell my subscribers about in the next few weeks.
I want to be clear that this stock met my criteria and has big long-term potential. I didn’t recommend it because of the sell-off. I just recommended it right now because of the lower prices.
On the flip side, I cringe when I see investors jumping into stocks that are flying now that weren’t before… companies that make masks, respiratory products, and the like. For example…
Those highs all came in one fleeting frenzy. All are now well below those highs. Both AHPI and APT have fallen 55%, and LAKE is down 36.5%. Investors who piled in during the panic buying are almost certainly looking at losses.
This is nothing new. I went back and looked at how Alpha Pro Tech and Lakeland traded during the Ebola crisis in 2014. Both did the exact same thing. They rocketed higher amid the fear only to be right back down to where they were within a few weeks.
Maybe some short-term traders can make money, but most other investors will get fleeced buying these stocks.
You’re much better off staying calm, staying logical, and staying with hypergrowth stocks in massive trends that will swell for years to come. These are the stocks set to move higher no matter what, but you can buy them now at bargain prices that will make your ultimate gains even bigger.
Click here to listen to Matt McCall’s MoneyLine podcast! This week, Matt discusses the recent market volatility. Stocks endured one of their worst weeks since the 1930s as a result of fear surrounding the coronavirus. But this isn’t the first correction the market has experienced – and it certainly won’t be the last. In this podcast, Matt dives into the history of stock market corrections. What it tells us can help us create a strategy. The current weakness is providing buying opportunities, and Matt names a few stocks with potential. Plus, he interviews famous value investor Dan Ferris of Stansberry research.
You can subscribe to this podcast on iTunes, Stitcher, Spotify, or wherever you listen to podcasts.
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