As you are no doubt aware, the markets have come under extreme pressure of late.
It’s all about the fears we see regarding a new virus, Covid-19, better known as the coronavirus. Overall we are coming through the selloff in pretty good shape.
But there’s no doubt we have given up a lot of gains as have millions of others. In fact, I have been getting a number of questions from concerned investors.
Q: I hear a lot of concerns in the media that the coronavirus could cause a recession. Is this possible?
A: Before I answer that question, I want to make sure we are clear on just what a recession is. I say that because a number of talking heads don’t seem to understand what they are actually saying.
A recession is not a slowdown in growth, which I do think we will see in the first-quarter, possibly into the second one. No, a recession has a specific definition – it’s two consecutive quarters of negative GDP.
So, while it is “possible” that could occur, at this point that doesn’t seem likely. It would mean the virus remained uncontrolled, shut down business and recreational travel, and led to layoffs that caused the economy to go backward for six straight months.
Q: How bad is the stock market right now?
A: The short answer is we have entered into a correction, defined as a 10% decline in the market. We are a long way from bear territory, which is a sustained 20% decline.
If we get some positive news like declining infection rates or the approval of a new vaccine, we could see a very strong rally. The underlying economy remains very strong.
A: Simply stated, both have exposure to China, with Apple sourcing many items there. And both have said they may see lower first quarter results. The market is a discounting mechanism and knocked by their values.
Q: Should I be loading up on stocks to take advantage of the selloff?
A: This is one of those periods where I think it pays to keep your powder dry and see how things develop. I would be very selective with new entries and focus on the best of breed.
Also, if you have lowball limit orders to pick up more shares of stocks you already own, keep to that plan. But be sure to use a stop loss to protect your hard-earned money.
Q: I’ve heard newscasters saying the U.S. is not prepared to deal with this virus. Is that true?
A: I think that’s a lopsided way of looking at this. The simple truth is that no country is fully prepared for this kind of fast-moving virus.
I say that for a very simple reason. A universal flu vaccine is the Holy Grail of the biotech industry. Several are in development and in various stages of clinical trials.
But until we have one that is approved and truly “universal,” we will always be at risk of a new virus getting out into the population. And since by definition, people don’t have antibodies for it, the virus will move through the population.
Q: So are we doing enough here in the U.S.?
A: I do think it was wise for Trump to name Vice President Pence to a task force and to monitor events before taking drastic measures that could hurt the economy way before we have hit a true crisis stage.
Pence has already met with 40 state and local officials, and the U.S. has barred non-citizens from traveling here from China. Trump asked for $2.5 billion in funding but lawmakers are saying the country should spend between $6 billion and $8 billion. That tells me we will see significant funding to combat this virus.
Q: I hear this could be as bad as the Spanish Influenza outbreak of 1918 that killed 50 million people around the world. What’s your take on that?
A: Again, anything is possible. But the odds of that happening this time are far more remote. Back then, there was no such thing as a flu vaccine, certainly not to the standards we have today.
There are already some clinical trials underway testing possible vaccines. That simply wasn’t possible in the time of World War I. Not to put too fine a point on it, but back then America was far less sanitary and the public was much less informed about health hazards.
Q: Then, just how deadly is the coronavirus?
A: The answer is a bit tricky. Yes, it has a much higher fatality rate than a standard flu. However, it’s important to keep in mind that, in the U.S., roughly 56,000 die of the flu each year, mostly older folks and children.
So far this flu season we’ve already seen 10,000 deaths from an estimated 19 million cases. So, the flu’s death rate this year is relatively low, and we are still nowhere near even that number for the coronavirus.
This new virus has a death rate of roughly 2%. That means we would need to see nearly 3 million confirmed cases to reach our average annual flu toll.
Q. Should people be trying to buy any of these vaccine-related stocks that are getting bumped up, or would that be “chasing shares?”
A: I think Gilead Sciences Inc. (GILD) could be a good turnaround play for patient, long-term investors. It has a great array of products but has lagged in profits of late.
The fact that it now has a drug in Phase 3 trials, the most advanced stage of clinical testing, is a positive sign. It will take at least another week before we have results. So, if you bought in right now, you’d be speculating this is the magic bullet.
Moderna Inc. (MRNA) recently soared 23% on news the biotech firm had shipped an experimental coronavirus vaccine to the U.S. government.
Last Thursday, it fell nearly 11% on volume that was more than six times the 50-day average. It dropped another 15% on Friday. Those who got caught up in the hype and bought at the top are already upside down.
That’s a pretty good cautionary tale on what happens when you skip the kinds of fundamentals we talk about so often here.
It’s also a good example of how much it helps to have experts in your corner when it comes to riskier investments.
That’s why I want to let you know about a special opportunity that I’ve had an eye on for a while now.
You can see all the details from a man named Howard, a veteran founder who is working towards giving everyday people access to high-yield investment opportunities that used to be exclusive to only the wealthiest investors.
I’m talking about a guy who’s already had the chance to pay back some of his first investors 10,000X.
All you have to do is click here to check out what they’re working on.
Cheers and good investing,
Michael A. Robinson