After Wall Street's worst day since the depths of 2008, we've been promised substantial government stimulus today in order to fight the economic effects of the coronavirus outbreak. It remains to be seen. However, investors are clearly willing to buy the rumor, which comes as a relief.
All but one of our stocks are down for the week so far, with only Dollar Tree (DLTR: $84, up 4% and rising another 2% overnight) resisting the undertow. That's the contrarian power that earned the company a slot in the Special Opportunities portfolio in the first place. If you're afraid of a prolonged Retail contraction, Dollar Tree is one of the few places where people will still leave the house to spend money on essentials that online stores can't easily provide at their prices.
Otherwise, it was a gruesome day. The way all stocks and sectors declined suggests program trading at work, with investors selling entire portfolios more or less indiscriminately. There may be a few hedge funds facing significant margin calls or other liquidity demands after the last few weeks. In that scenario, the sudden losses in the Energy market will probably hasten the liquidation decision and let the market heal.
For us, it's striking to see the way the weakness was evenly distributed around the BMR universe. While the Big Tech that dominates our Stocks For Success held up relatively well, even the defensive High Yield and Healthcare portfolios dropped around 6%. Real Estate fell harder, contrary to what we might have thought when we were more worried about the outbreak's overseas impact. Investors are either thinking that the U.S. economy is going to crash and take commercial landlords with it, or else they aren't thinking at all. (Again, indiscriminate selling.)
The latter scenario presents obvious opportunities for investors with stronger nerve to buy the stocks their vacillating peers abandon. Otherwise, while we don't know how serious this outbreak will get, we're heartened by the way new cases in China have slowed while thousands of patients recover. Even if Beijing is bending the numbers, it's clear that the epidemic there has peaked. The Chinese stock market is only down 5% YTD now. It bounced overnight instead of following Western counterparts lower.
For all practical purposes, the outbreak is ending in China. That was as bad as it got. Whether the United States follows that path or not, any economic stimulus we see today will help ease the pain for businesses and workers. Market futures jumped last night after President Trump promised "very substantial relief" including payroll tax cuts and other measures. We'd be happy to get it. As with last week's interest rate cut, this is becoming the kind of situation where aggressive action is better than caution, at least in the short term.
That goes for you too. If you're heartened by the numbers we're seeing in China, it's worth getting ready to buy U.S. stocks as we look toward recovery. This may be the day. Otherwise, line up your targets and prepare to move in the next few weeks. And if you're scared, rotate a little money into secure yields. We do not think any of our companies will implode no matter how bad the virus gets. Lock in income and hibernate until you feel it's safe to come out.