Severe selling pressure continues this morning as market players react negatively to government efforts to address the coronavirus nightmare. There has been hope that a combination of fiscal and monetary policy would help to cushion markets as they fell into bear market territory, but the tremendous economic and medical uncertainty of the coronavirus is making it impossible for market participants to price in the damage that is being done.
Virtually no individual or business enterprise will be untouched by the fallout of the coronavirus -- and there is no way to determine the cost at this time. People are hoping that travel restrictions and containment will help to control the health issue and that a payroll holiday, lower interest rates and a flood of liquidity will address economic issues, but there is no sense of certainty at this time. No one knows how severe the outbreak of coronavirus will be in the United States and no one knows how long it will impact normal social and economic activity.
The old saying about the market hating uncertainty is on full display right now. There will be widespread reductions in earnings estimates and, in many cases, it will be impossible to even calculate the potential damaged.
Currently, the indices are in freefall and the best course of action is to remain on the sidelines. I've written repeatedly in the past week that this is no time to be buying and that is true even if you have a long-term timeframe. There will be plenty of time to rebuild positions once there is some clarity. The risk of further downside is very high and it is not prudent to try to predict when the market might bottom.
Many market players were hopeful that policy moves would help to deliver some sort of relief bounce, but the headlines now are that there is deep disappointment with the efforts being made. House Democrats will be announcing a bill today with some additional measures and it is a near certainty that the Fed is going to cut rates by at least a half-point again, but none of these moves are providing much reassurance because no one knows yet what the ultimate damage will be from the coronavirus.
My best advice right now is the same it has been for a while. Stand aside and stay patient. If you want to do something then stick to very short-term trades with controlled risk. There will likely be some countertrend moves, but trying to time them will be extremely challenging.
Most individual stocks simply can't be valued right now due to earnings uncertainty. Don't be too quick to conclude that a stock that has dropped substantially is now "cheap". Earnings estimates cannot be relied on.
The damage that has been done to this market is actually much worse than indicated by the DJIA and the S&P 500. Only about 9% of stocks are over their 200-day simple moving average and the Russell 2000 Small Cap Index (IWM) has almost completely given back the gains earned during the Trump presidency.
Our primary job at this time is to make sure we are positioned so that we can generate maximum gains once market conditions improve. The one great certainty of the market is that conditions will eventually change.
