The intent of this post is not to make any additional panic. I’ve been on the defense since the first half of February, and I hope you were too after posts Bonds, buy Bonds and Bumpy road ahead were published.
But things are getting serious, the virus is affecting the economy and the markets greatly as you have probably already noticed. I’m not an expert on viruses, but the markets are telling us this situation is not to be taken lightly. As I tweeted a few times in the past couple of weeks I prefer to “panic” sooner rather than later. Majority does the opposite, rather than prevent they’re forced to deal with the consequences.
As of writing the S&P 500 stock index is down more than 8% just today, or down more than 25% from the peak. This is on record the fastest 20% correction measured from the peak, including the 1929 meltdown.
We might be due for a snap back, a face ripper, rally. This may also be a historic buying opportunity, but as things stand, I wouldn’t exclude more downside further down the road, or, in best case scenario, a period of very high volatility with a range bound trading. There’s just an overwhelming supply waiting at higher prices.
I’ve been seeing so many “buy the dip” calls during this selloff. Everybody is so eager to buy the bottom because they’re sure the market will be higher a few weeks, months or years from now. But what if we don’t see a repeat of 2019? What if the EU and the US get into a complete lockdown? What if the selling is not over yet? What if the exchanges are forced to shut down for a prolonged period of time? Could you handle that?
However you might want to turn this around, this is a period when cash is king.