Should I Buy Stocks Now?
Updated: Mar 30, 2020
A discussion of the market as of the week ending March 20th to see whether it's a good time to invest, and if there are any positive signs developing.
Hello ladies and gentleman welcome to the Elias Talks money v-log where I talk all things money and motivation. Last week was the worst week in the stock market since the great recession in 2008 with the S&P 500 down 8.2%.
Since market peaks just in February we are down a staggering 32% on the S&P 500. All the way down from 3393 to our close on Friday of 2305. Yikes!
So what do I think, is it a good time to buy? Well the way I look at it things could go lower. We are bound to hear some scary news over the next week such as jobless claims, stricter clamp downs to prohibit movement of people that will further suppress the economy, and also more bad news on the number people that are getting sick ,fatalities, and hospitalizations.
In the short-run anything can happen with the market and if you're going to put money to work in this sort of environment it really depends on your time horizon. If you're looking for a quick trade over the next week or two or even months it's a bad idea.
Another thing is that people could start to draw on their retirement accounts in a very significant way during this time to cover their bills if this pandemic continues. Selling diversified mutual funds and ETFs that could indiscriminately drive down all equity prices further as funds need to re-balance. This could create a further opportunity to pick up the best stocks at even more rock bottom prices than they are now.
Personally I do not think it is the end of the world though. We can see that in China that they are getting back to normal already, and even if it takes a little longer for us to get our house in order in the rest of the world it will eventually happen.
There are a lot of good business right now selling for ridiculous discounts it really is a stock pickers market. If you can see beyond our current situation into opportunity there are fortunes to be made.
As we begin to learn businesses can continue to operate through to the other side of this cloud of uncertainty and even benefit we are bound to see a very large snap back in the market.
Usually recoveries from virus related market pullbacks like EBOLA & SARS tend to be "V-Shaped". The market goes down really fast and then recovers quickly.
Who knows how exactly this one will shake out due to the impact on the economy based on the way we are managing through it, but when we begin to see that the virus is somewhat under control in the developed world, and the number of new cases are decreasing on a daily basis, I can only imagine the upward movement in the market will be fast and furious.
As we turn the corner on our fight and begin to get incremental good news on a daily basis like how we are getting incrementally more bad now things will turn around. From the time China implemented strict lock downs to when the they saw a peak in cases in took about 3 weeks.
It's times like this when we have economic hardships that it reminds us at the importance of looking at company balance sheets, because in hard times when the tide goes up companies that are over-leveraged get exposed.
So overall what I would say is that if you're looking to get into the market long-term start staggering your money every week over the next couple months as we get a handle on the virus.
If you're more conservative do 3 or 6 months or more. Most recessionary type pullbacks are about 35% peak to through and that's roughly where we are right now. Like I mentioned due to the nature of this issue it's possible that when we realize that the world isn't ending the market rebound will be sharp.
The market is a forward looking indicator it will likely fully rebound ahead of the economy.
So what are some positive signs in the market right now. Firstly the VIX. The volatility index otherwise know as the fear gage has been going up steadily over the past month.
But last week it actually decreased as we have a better sense of what we are exactly dealing with as far the virus. It had peaked as high as 85 and has come down in the mid 60s. The higher the Vix the worse stocks usually perform, as volatility is correlated with uncertainty which the market does not like.
Another thing is that the USD is gaining strength versus safe haven currencies like the Japanese Yen and Swiss Franc. This is a possible indication that smart money might be getting ready to start adding significant exposure to US equities in the near future. We're talking 5-10 percent moves so it is material.
Also another safe haven asset gold as come off a bit from it's high in excess of 1600 into the low 1500s.
We are also seeing some resistance on the s&p 500 around the 2300 level as around 19,000 on the DOW Jones which was tested two times last week on Wednesday and Friday.
While there are a few positive signs we'll see some positive upward market pressure in the near future it's not definitive. In these uncertain times not knowing how things will develop on the ground which will no doubt impact markets short-term; we need to prepare for a possible further leg down just in-case and stagger our money in slowly.
Lastly, that being said I would be remiss to say this is a huge opportunity to pickup those stocks that you have on your watch-list at bargain prices. Think 10 yrs down the road when deciding what to invest in, and you'll quickly realize this is a great sale! The only thing that you can do worse than investing all at once right now is not investing at all if you have the capital to deploy. You just need to be thoughtful and disciplined on how will stagger in those investment funds, and also selective on the picking the right companies that will successfully come out the other end of this messy predicament that we've found ourselves in.
That's all for today. Thanks for watching my video and those are my thoughts on the subject. If you enjoyed my video please like and subscribe to the Elias Talks Money YouTube channel or follow me on the Elias Talks Money Facebook Page. Over and Out.