The Bottom? Hello? Are You There?
The bottom? Hello? Are you there?... We survey our editors... A pretty bearish group right now... The signs of a bottom aren't here yet... The Fed goes 'to infinity and beyond'... Scientists are hard at work... Mother Nature's curveball... Don't miss Porter's event on Thursday...
We're not in the office nowadays, but that doesn't stop the discussions between our editors...
E-mails. Slack conversations. Text messages. Phone calls. It's all still happening as we work from home due to the coronavirus epidemic.
And as we said in yesterday's Digest, our founder Porter Stansberry will share his thoughts about today's once-in-a-generation market in a free – and "social distancing" appropriate – presentation at 3 p.m. Eastern time on Thursday.
Click here to sign up right now to make sure you don't miss it.
Beyond that, Stansberry Research editor Thomas Carroll, a longtime health care sector analyst, recently polled our roughly two dozen investment professionals for their views on the wild market we're in today...
Specifically, Thomas wanted to know everyone's answer to a pair of time-sensitive questions we've pondered in the Digest over the past few weeks...
- Where is the bottom?
- And why do you think that?
Yesterday, I (Corey McLaughlin) noted that a few reliable pieces of historical data indicate things will head lower before turning around...
And today, we'll give you the collective view of all the Stansberry Research editors via Thomas, who digested all the responses he gathered and distilled them into the "big picture" report he shares below...
It includes five big reasons the group is bearish today... what many of these editors are looking for to know when the bottom is here... and three possible catalysts for a bear-market turnaround.
Thomas takes it from here today, starting with the results of the survey...
First off, we continue to be a pretty bearish group...
Every response indicated that we should expect more pain across the financial markets.
On average, our group of editors and analysts expect the benchmark S&P 500 Index to decline another 23% before it finds a bottom. The most positive outlook was a 7% decline. The most pessimistic was 35%. Even the few of us who believe a bottom is near expect more pain before relief.
From the S&P 500's close of 2,304 on Friday, our estimates imply that the index will bottom between 1,500 and 2,100, with a median of 1,775.
Public sentiment is not bad enough yet...
"Hey Tom, you're an investment guy... What tips do you have for me?"
I've heard this popular question a few times recently. Many of the Stansberry Research analysts have heard similar things from their friends and family, too.
This means one thing... Market sentiment isn't bad enough yet to suggest a bottom.
DailyWealth editor Dr. Steve Sjuggerud and one of his analysts, Chris Igou, both wrote about this recently – in last Thursday's Digest and today's free DailyWealth e-letter. From Steve today...
Typically, when a big stock market fall hits the mainstream news, they appear out of nowhere to "buy the dip." Unfortunately, it rarely ends well.
I bring this up because I'm seeing this type of behavior right now from inexperienced investors...
As evidence, Steve cited a recent article on Bloomberg, headlined, "In Midst of Chaos, Nasdaq ETF Gets Biggest Inflow in Two Decades." As Steve continued in DailyWealth...
The article was written a few days ago. Since then, this month's inflows into the Nasdaq exchange-traded fund ("ETF") are now at an all-time high.
The three previous records for monthly inflows into the Nasdaq ETF were back in 2000 – as the dot-com bubble was crashing. The months were October, November, and December 2000, to be exact.
The most likely buyers back then were individual investors "buying the dip." And by those final months of 2000, that "dip" in the Nasdaq had landed at around 3,000 points – down 40% from the peak.
These investors got crushed going forward, especially if they ended up selling at the real bottom like many inexperienced investors...
The Nasdaq hit a couple other major lows after they bought... in April 2001 and September 2001. The ultimate bottom didn't arrive until October 2002. If they bought around 3,000 points and sold at the bottom, then they lost more than half their money.
Today, inexperienced investors are buying. So, based on history, I believe the bottom is not in yet.
When will investor sentiment truly signal a bottom?
Well, throughout history, bottoms are formed when no one wants to invest...
Bottoms happen when market fear is so bad that people think we are close to a bottom, then buy stocks, and suddenly sell those positions and lock in fresh losses because of fear...
We don't know what we don't know...
In order for the "smart money" to start returning to the market, it needs a few anchors. That typically means having some sense of future corporate earnings and macro-economic measures.
At this point, we know neither...
This global economic shutdown is still new. When companies begin to revise their financial outlooks, how low will it go?
Stansberry NewsWire editor C. Scott Garliss mentioned to me that industries such as hotels could see revenues fall as much as 75%. Restaurants may be down 65%. And casinos may see revenues fall a whopping 95%.
The markets need a better handle on what the ultimate impact will be.
For example, people are being laid off and furloughed across many industries. The hotel that my family stayed at over our abbreviated spring break, a Marriott (MAR) property, laid off 80% of its employees the day we departed.
A family member of mine who works for a national physician network was furloughed along with 80% of the partner physicians. People aren't even going to the doctor.
Stories like these are common today...
From an economic perspective, what will the employment numbers look like when they come out? This is the first of many reports scheduled for the coming weeks that will reflect the economic impact of the pandemic.
The market needs to have some sense of these items (and others) before a bottom can be formed. And these high numbers are not likely digested by the market.
Don't forget the election...
The 2020 presidential election was already shaping up to be a market-mover, as I've written in recent months. But now, we must account for a host of new considerations...
Could President Donald Trump be out? He will be ending his first term with the market in the tank and unemployment spiking.
Will people even get out to vote if COVID-19 is still spreading around the country?
These are new election schools of thought that did not exist only a month ago. This adds another few gallons of fuel to the uncertainty fire.
It's difficult to make predictions, especially about the future...
Essentially all of the rhetoric about today's market is about the present...
The daily new cases of COVID-19 by state and country. The number of new deaths. The current progress of potential medications. And the latest White House press conferences that rehash it all.
But like the flu, COVID-19 is here to stay. It will not go away. In fact, there's a chance it could surge again as we get into the fall. Would that spark fresh fears of another round of illness and death? And could it perhaps cause any summer rally in the stock market to vanish?
A number of Stansberry Research analysts believe the bottom won't form until we get to the second chapter of this pandemic. A few even considered S&P 500 numbers as low as 1,400.
I told you we were a bearish bunch...
'OK, Tom, enough with the pessimism'...
There's more I could say, but the above five themes should paint the picture well.
Now, let's turn to some potential "safety valves" amid this market drop. Could we be closer to a bottom than most folks realize?
Here are three big themes that could support a rally...
The Fed has gone 'to infinity and beyond'...
On Monday, the Fed basically opened the door for unlimited quantitative easing ("QE").
QE has always been on the table, but the spigots are now wide open. As Scott wrote in the NewsWire this morning...
The Federal Reserve now has the capacity to buy investment-grade corporate bonds and exchange-traded funds ("ETFs")...
Yesterday, the central bank said it would use all the tools at its disposal to ensure maximum employment and price stability.
[Fed Chair Jerome] Powell unveiled a number of new programs to support the flow of credit to companies and individuals. He also urged the government and businesses around the country to take aggressive action to ensure minimal loss of jobs and income, which will be needed for a rapid rebound.
Fed policy, along with the stimulus actions under debate in Congress (bailouts for certain industries and $1,000 checks to regular folks) could cushion the currently unknown economic pain in the short term... and give investors a "base" to work with.
But what all this stimulus means for the U.S. economy in the long term – the Fed buying corporate bonds and ETFs now (up to a 20% maximum of these funds) and a wonky mortgage market – is another thing entirely.
Meanwhile, scientists are hard at work...
Medical professionals worldwide are working around the clock to find therapies that will combat COVID-19. This research is already bearing fruit.
Good data on this progress will serve to soften the market fall.
Recently, President Trump (not a medical professional) said he "has a really good feeling" about a drug used to treat malaria. He even called it a "game changer."
However, physicians and public health experts warn that any results seen to date are purely anecdotal. (See last Saturday's New York Times opinion piece by columnist Maureen Dowd, "Thank God the Doctor Is In.")
With that said, the Commander-in-Chief does have a point... Tough times call for tough measures. Science and rational thinking will rise to the occasion.
The malaria drug chloroquine and an experimental Ebola drug called remdesivir – developed by Gilead Sciences (GILD) – have shown some promise against coronaviruses. The former, unfortunately, causes death if the dosage is too high. That's a big problem.
Hydroxychloroquine, a derivative of chloroquine, has shown much less toxicity. It's currently on the market to treat a number of autoimmune illnesses – such as lupus and rheumatoid arthritis. So it may be more available to study in the near term on an "off label" basis.
Around the world, several small studies are being conducted in a race to find a safe and effective treatment.
The globe was turned on its head about two weeks ago... It's reasonable to assume that the U.S. Food and Drug Administration and other governing bodies around the world will put expedited protocols in place.
Just last week, for instance, Regeneron Pharmaceuticals (REGN) announced that it may begin testing a COVID-19 therapy as soon as June.
Positive news about the race to find a therapy will be a catalyst for the market rebound.
And it probably won't take years, as many experts suggest.
Will this all be a 'one-time item'?
I've analyzed the markets for two decades. And I believe everyone should understand a few nuances about them – involving earnings reports, in particular...
Companies occasionally report earnings that are far higher or far lower than expectations. This is caused by unexpected accounting adjustments, operational hiccups, or something else that creates a short-term blip.
As long as the reason is understood and little uncertainty exists, analysts will typically ignore the cause of the gain or loss. So when a company reports an explainable quarterly loss that isn't expected to continue, it often has little impact on that company's stock.
These characteristics, generally speaking, currently exist with the COVID-19 pandemic.
There are still many unknowns. But the global response to this virus is well-known... News and information travel at the speed of light. And the 24-hour news cycle reports on it constantly.
The economic slowdown from the COVID-19 pandemic is inevitable. We all know this. That's why global markets are falling.
But there is not uncertainty that corporate earnings and economic indicators will suffer significantly. The world knows what's happening...
So the first signs of good news (or the first signs of "less bad" news, as Steve Sjuggerud likes to say) could establish a bottom in this market.
Will investors begin to look at this as a "one time" item? Is it just a curveball from Mother Nature? If so, once the virus has peaked, economic activity should quickly return.
Perhaps that's all wishful thinking. But it seems like a reasonable addition to all our other thoughts in these strange times.
We also do know a lot – if we sit back, don't panic, and think about it...
We will reach a bottom. That's for sure. And a few years from now, you'll be glad you found some cash and put it to work.
Swift market declines offer us a lot of pain, but also a gift of sorts. As we showed in yesterday's Digest, the bigger the drop, the larger the rebound tends to be.
And times like these are when irrational, panicked thinking puts the market on sale. The smart money, meanwhile, has cash available for such times.
Along these lines, we urge you to check out Porter's free presentation at 3 p.m. Eastern time on Thursday. Remember, it's free... We only ask that you reserve your seat right here.
Given these unprecedented times, Porter has decided to head into our office this week to chat with our Director of Research Austin Root. Porter will share his thoughts on everything that's going on, and in part, take our conversation today to its next logical step...
That means offering essential guidance, including when to get "back in"... Because, as all of our editors agree, we're still waiting for Mr. Bottom to show his face.
New 52-week highs (as of 3/23/20): none.
In today's mailbag, a name for a new drink and a message from Hawaii for our colleague Dan Ferris – and any investor, really. We've also received your questions for Porter and have shared them with our webinar team. As always, send your notes to feedback@stansberryresearch.com. And don't forget to sign up now for Thursday's event.
"What's a Quarantini? It's a Martini that you drink at home, alone." – Paid-up subscriber Bill V.
Corey McLaughlin comment: We may have had a few already. Some related good news... the governor here in Maryland has deemed liquor stores "essential," so they'll stay open.
"Aloha from Hawaii, Dan. First and foremost, Thank You for your repeated warnings and recommendations over the last few years. Will keep it short.
"I am a relatively new active investor. Over 30 years throughout my career at Verizon I just invested all I could into my 401k twice a month. Didn't much care or look at it much.
"I retired literally the week the crap hit the fan this month. How did that feel, Terrible!! After several meetings with my financial planner to get green light to retire, Corona came and NOT the ice-cold beer kind.
"It's funny how you start looking at the markets and news daily when it starts to matter. Makes me think NOT that many people actually stay informed as we do and probably don't have much of a clue or care what markets do. They care when their job gets in jeopardy.
"I didn't mess around with fancy put options and all that stuff. I just went 55% cash, 15% Gold and Silver, 5% Bitcoin, and the rest targeted stocks in my field (5G deployment) that I know will do well long term, and don't worry about. I put out stink bids on a few... if they hit, great. Also added a few that are way off highs and solid companies not going away.
"Thanks to you I listened and did not get fancy or greedy, and for now it's saving [me]...
"Please try not to get too mentally drained in all this. It's not gonna change anything. I am confident humanity will beat this. I had to step away because the news is mostly responsible for spreading so much fear. Our country has been through much worse, we will make it out.
"I went kiteboarding today in Kailua Bay, my daughter surfing next to me. At that point I don't need anything and no cares in the world. It clears my head I didn't watch the news or stocks all day and I made it a goal to stay away from media and read good novels, go surfing or hiking, and just not get caught up in all the hype this week.
"We can control what we can control and plan the best we can. The rest is up to whatever you wanna call it. I am staying in my core competence and not trying to outsmart or outthink these markets, as tempting as it can be. I listen and learn from you guys.
"Hang in there, my friend. You blasted the megaphone loud and saved little guys like me from going over the edge. I know there are more like me that took your heed. Please know it is very much appreciated. Your warnings were NOT in vain." – Paid-up subscriber Ken W.
All the best,
Thomas Carroll and Corey McLaughlin
Baltimore, Maryland
March 24, 2020