Use the Coronavirus sell off to do some bargain hunting.
There's never been a sell off, for any reason, where the market did not recover and reach new highs. Of course, the length of recovery can be protracted. Uncertainty now is no reason to flee stocks. The market outlook is always uncertain.
While the Coronavirus is bad, it generally is not lethal. More people by far die from the common flu.
In all health scares in the last 30 plus years, the market's been up within a year by about double-digit percentages from the onset of the issue.
Many pundits are sure the Coronavirus will become a big problem in the US. Maybe, but most of those pundits did not forecast the viral outbreak in China at the start of the year. If they didn't see clearly then, why assume they see clearly now?
Market reaction is helping the economy. The lowest interest rates ever on some debt instruments allow for refinancing and boost the all-important real estate and construction industries. Falling gas prices help drivers’ budgets. The stronger Dollar keeps inflation at bay.
Stock dividend yields are now nearly 1% greater than the interest payout on the 10-year Treasury. Historically, that spread has led to big gains in stocks.
Policymakers stand ready to take all possible measures to stop the spread and bolster the economy. Our Federal Reserve just reduced rates by one half of one percent, the biggest drop since the sub-prime crisis, and is predicted to cut rates more before the end of the year.
Investors generally get bitten by the risks not being talked about. The fact that it's widely thought that conditions will worsen and could hit the US hard means those fears are discounted in equity prices.
Anything could happen. There are no guarantees of anything, but then again there never are. The response to the virus could be worse than the actual effect. Analogize to the smell of smoke in a theatre, where more people are hurt trying to flee the building than by any actual fire.
In a worst-case scenario, the election is thrown into chaos. Wall Street dislikes political uncertainty more than it dislikes disease. While ultimately things are likely to get better, the timing, like everything else, is not certain. Stock investors should have a long-term horizon.
Don't try to call a bottom in markets. Bottoms are only realized with much hindsight.
Just because the Coronavirus problem dissipates does not mean all other headwinds for stocks, like a slowing global economy and trade tensions, will be solved, too.
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