What to Make of Rising COVID-19 Cases
Cases are on the rise in the U.S. – but not everywhere... What to make of rising COVID-19 cases... The smart investor's playbook... The airlines are lighting money on fire... The most volatile year ever?... Don't fight the Fed...
Like it or not, the coronavirus is driving today's market...
It has pushed and pulled the stock market since the middle of February... And it probably will do the same for at least the rest of the year.
As we wrote last week, when the Federal Reserve says it's following the COVID-19 case numbers like everyone else – but then, unlike us, uses that information to make tectonic-sized, economy-shaping, market-distorting policy decisions – it's wise to take note of it.
That said...
U.S. cases of COVID-19 have been on the upswing...
DailyWealth Trader editors Ben Morris and Drew McConnell shared this chart today. As you can see, it shows the uptick in U.S. cases over the past five days...
As part of an update to their "Coronavirus Trading Playbook" in today's DailyWealth Trader issue, Ben and Drew warned...
This is a concerning trend. As we learned earlier this year, COVID-19 can spread extremely quickly.
In an update this afternoon, Stansberry NewsWire editor C. Scott Garliss also noted the growth of U.S. cases. However, Scott also said the fears might be overblown, considering what he found by looking closer at the data. As Scott wrote...
Five states have very low numbers, nine states have spiking caseloads, nine more states have climbing rates (including Puerto Rico), 10 states are holding, and 20 states (including Washington, D.C.) have falling infection numbers.
That would lean toward more states on the decline than those on the rise.
Either way, the trend in reported cases in the U.S. (at least 20,000 per day and rising a bit) looks a heck of a lot worse than the same trend in places like China, Italy, Spain, France, and the United Kingdom.
These countries have all had fewer than 2,000 (and dwindling) new cases per day for weeks... and have been doing things a bit differently than us.
COVID-19 is sticky...
It's not going anywhere, except to other humans, on its own... And that fact will weigh on the markets for a while. We're talking about years, if past pandemics are any indication. More from Scott...
Testing, isolation, mask usage, and contact tracing. That will be the difference maker for the markets. Those will be the steps necessary until there's a vaccine ready for mass distribution.
And of course, a vaccine may not be available countrywide until sometime in 2022, as we wrote in the May 27 Digest. And we'll spare rehashing the debate about masks, lockdowns, and the like today... (Although if you have opinions on those points, please send them to feedback@stansberryresearch.com.)
Today, we want to detail what a reignition of reported cases across the country – and the narrative about the associated concerns – means for the markets, whether you support wearing a mask or not.
The smart investor's playbook...
First off, as we wrote last week and as many of our editors have consistently said throughout this year...
- Diversify. And it's also a good idea to own more portfolio protection than usual. (You can do that simply by holding cash or buying gold, for example.)
- Smart buying (or shorting) opportunities also exist (and NOT one that entails buying shares of recently bankrupt companies – like rental-car company Hertz – that many new investors appear to be trading lately).
All of this is timeless and true, including the Hertz situation, which continues to grow into a raging dumpster fire of epic levels...
(Just today, less than a month after the company filed for Chapter 11 bankruptcy, Hertz announced in a filing with the U.S. Securities and Exchange Commission that it will be selling up to $500 million in stock in an effort to raise money. But the company also acknowledged the shares likely won't be worth anything until its current debtholders are repaid... Seriously.)
So unless you're comfortable losing 100% of your money, we don't recommend touching that speculation even if it's with an antibacterial-slathered 10-foot pole...
You'd be much better off heeding the advice of smart people like Ben and Drew. In their update to DailyWealth Trader subscribers today, they wrote...
It's likely a good time to hold the companies that performed best during the initial outbreak.
And...
Trade in a way that reduces your risk rather than in a way that maximizes your potential gains. It's simply not the time for that.
Take home-improvement retailer Home Depot (HD), for example...
Longtime followers of Dr. David "Doc" Eifrig's work know this is one of his favorite stocks to hold for the long term.
Doc and his Income Intelligence research team most recently recommended buying shares of this high-quality company in mid-April. People are finding everything wrong with their house and fixing it up while quarantined, and the housing market is sizzling with all-time-low mortgage rates.
Plus, Doc and his team thought of this stock as a play that would work out whether the market continued to churn higher from its March lows... or if it took a breather after such a massive move up. As Doc wrote to Income Intelligence subscribers on April 16...
If the market remains strong from here, we want to start buying things on the cheap. We don't have to go "all in," we just want to start taking small steps to put our capital to work and earn income.
On the other hand, the economic carnage could grow, and the market could tumble. If we reach for the high-risk, high-return "junk" today, we could get burned.
Subscribers are up 23% since Doc's latest buy recommendation on Home Depot.
Speaking of the high-risk, high-return 'junk'...
As much as Barstool Sports founder Dave "Davey Day Trader" Portnoy wants to bash Warren Buffett (and that does make for good contrarian PR), the reasons the Oracle of Omaha had for dumping Berkshire Hathaway's airline holdings earlier this year are becoming clearer each day.
The major airlines are burning cash quicker than jet fuel, apparently...
United Airlines (UAL) said today that it would continue to lose $40 million in cash per day in the second quarter... Delta Air Lines (DAL) has burned through as much as $100 million per day and expects to lose about $40 million per day through the end of this month... and American Airlines (AAL) says it is bleeding $50 million in cash per day.
As Stansberry Big Trade editor Bill McGilton wrote in his May issue, April's bailout package for the major airlines – including the government option to buy shares in the companies – was only a stop-gap measure to keep them alive...
No matter how much money the government throws at the airlines, it's not going to save current stockholders if no one is flying. And there's no indication that air traffic will get back to normal soon...
In recommending a short play against one major airline company, Bill also reminded us that Dave Calhoun, the CEO of aircraft maker Boeing (BA), recently said in a TV interview that we "most likely" will see a major U.S. carrier go out of business – possibly as early as September. Calhoun apologized for that comment not long after, so it's likely true.
After airline stocks like American were up more than double from their March lows this time last week on data that passenger traffic may have been picking back up, they've been slammed back to mid-March levels.
The point is, things are likely to stay volatile for a while...
In fact, we could end up seeing the most volatile year ever.
According to an analysis shared recently by Ritholtz Wealth Management's Ben Carlson...
This year has 3 of the worst 25 losses and 2 of the 25 biggest gains for the S&P 500 since 1928:
We also want to add that all of these huge days (up or down) came in the month of March. That's not exactly indicative of a long-term trend.
But still... in 2020, we've experienced 26 daily moves of 3% or more in the S&P 500. The previous seven years included just eight moves of 3% or more in total.
And Carlson said one-third of all daily moves in the stock market have been 2% or more this year.
In other words, Mr. Market is not who he was for the past decade...
The days of opening your brokerage account and seeing green all over the screen most of the time are at least becoming less frequent. That can be hard for a long-term investor to watch or digest...
This is why our editors continue to preach buying investments you'd be comfortable holding for 10 years, as well as sticking to or adjusting your asset-allocation plans based on your investing timeline and risk tolerance.
On the bright side, in times like these, if steep double-digit percentage drops happen – like the one we saw in March – you can grab shares of some of your favorite companies on the cheap... with the cash that you may have sitting on the sidelines.
And for short-term traders, like Ben and Drew and Ten Stock Trader editor Greg Diamond, there are opportunities to be had... so long as you're comfortable taking the risks – and are willing to quickly adapt to the current market environment.
Greg, a technical trader and Chartered Market Technician, described this idea wonderfully in his weekly market outlook this morning, mentioning what we started today's Digest with – the possibility of the increased spread of COVID-19. As Greg wrote...
You must adapt this same mindset for what can happen for the rest of this year.
It's an election year, there could be a second or even third wave of COVID-19, social unrest is rising, and unemployment is high.
The Federal Reserve is providing more liquidity than it ever has in its existence. Congress is passing trillion-dollar stimulus packages.
Anything can happen...
Prepare to trade accordingly.
Greg believes we're in a long-term "roundtrip" market that could swing wildly for the next several years. And that means a lot of opportunities for trades on the long and short sides by looking at what the market is presenting you...
In fact, he's eyeing up several moves now, including a trade on a bond fund that has already delivered gains of 165%, 55%, 67%, 168%, and 123% for subscribers. Greg believes it could hand out even more gains based on the Fed's battle plan against the coronavirus as cases tick up.
Don't fight the Fed...
Just this morning, Greg said...
The battle between the resurgence of COVID-19 and Federal Reserve stimulus will pick up in intensity.
What new stimulus is coming? Congress is on a break in two weeks, so this means anything new will come from the Federal Reserve.
But what else does it have up its sleeve other than to buy stocks? It has tapered its bond purchases of late, so it may ramp this back up, another tailwind for the setup to buy bonds.
Go figure... the Fed announced today that it will inject $75 billion worth of stimulus (which was then instantly leveraged to $750 billion) to the bond market.
This is the same sort of thing the central bank did at the height of the market panic on March 23 – balance sheet of a financially illiterate second-grader be damned.
In any case, click here to learn all the details about Greg's short-term trading strategy today, including how you can trade this latest bit of news and much more.
New 52-week highs (as of 6/12/20): DocuSign (DOCU), KraneShares MSCI All China Health Care Index Fund (KURE), and Sea Limited (SE).
In today's mailbag, feedback on Dan's "controversial" statement from Friday's Digest and a note about Chris Igou's Masters Series essay from Saturday. Do you have a comment or question? Send it to feedback@stansberryresearch.com.
"Every day it seems that the country has gone further into the loony bin. One hopes that readers/listeners who have become part of the 'cancel culture' movement are few in number but who knows?
"This acceptance of rioting and burning by some anarchists/communists in our midst is disappointing at best, and frightening at worst. Is this what our education system has produced? God help us." – Paid-up subscriber Scott M.
"George Floyd should not have died. No one should over a $20 counterfeit bill. I do believe racism exists. However, I do believe most Americans realize that fact and try not to be racist. Even declaring that George Floyd should not have died and that Officer Chauvin is at fault, it is hard to imagine the destruction of other innocent people's property and livelihood is justified. It does not make sense.
"I am sorry but those many businesses, owners, workers, and neighbors near the destructive riots, are not the problem. It only hurts those that are already hurting. I hope good comes from this, but demonizing every police officer is not the answer. I do not have the answer but taking it out on the innocent will not solve the problem." – Paid-up subscriber Mitchell F.
"I love free speech, and I love hearing your opinion on current events. Freethinkers are becoming such a rare breed, but you still fit the definition! (At least until someone complains to Merriam Webster)." – Paid-up subscriber Hunter S.
"Dan – I couldn't agree with you more. Violence is not the answer to injustice. There are riots in the streets as well as peaceful demonstrations. The distinction is clear. Thank you for saying so." – Paid-up subscriber Carol V.
"Chris, I grew up in Lake Lure. Western North Carolina is gorgeous and there just aren't many buyers when people 'need' to sell. Good for your father recognizing the opportunity.
"I'm a Realtor in Las Vegas and everyone keeps asking do you think home prices will fall soon. I can only go based on the business I'm currently doing, and these last couple of months have been the best I've experienced in 20 years of selling homes.
"Low interest rates, a lack of inventory and high rents are pushing the market. If you don't own your home now, you need to do what it takes to buy before getting priced out and have to remain a renter." – Paid-up subscriber Jimmy B.
Corey McLaughlin comment: Thanks, Jimmy... for the note and the perspective. As Chris and True Wealth editor Dr. Steve Sjuggerud wrote in our Masters Series essays over the weekend, they see similar tailwinds in the real estate market right now.
And a reminder to all Digest readers... If you're interested in learning more about great investment opportunities, Steve and his research team see in the real estate market today, be sure to sign up for Steve's free upcoming webinar on June 24.
We've never covered anything like this in Stansberry Research's 20-year history... Steve will be joined by a panel of experts, including a former winner of The Apprentice. Click here to sign up now to make sure you don't miss anything.
All the best,
Corey McLaughlin
Baltimore, Maryland
June 15, 2020