How To Navigate These Turbulent Markets

The Federal Reserve made an unprecedented emergency rate cut on Sunday that dropped its benchmark Fed Funds rate by 100 basis points, 3 days before the FOMC was set to meet. Jerome Powell and his dovish band of regional governors have officially spent all of their basis points with the Fed Funds rate falling to zero. They can provide the economy with little more economic relief outside of QE, which I would expect will ramp up even further following this week’s meeting. QE is also a dangerous game to play because the Fed risks pushing interest rates into the negatives. Negative interest rates are a “monetary black hole” that has hindered the country of Japan for more than 2 decades.

Despite these drastic monetary measures taken by the Fed, the markets are still tanking in the most volatile month that stocks have seen in over a decade. The Dow swung over 1,000 points every day last week (2 up, 3 down), with uncertainty hitting historic highs. The unprecedented volatility is far from over as the full implications of the novel coronavirus unfold. For the 3rd time in 5 trading days, the markets were forced to halt trading with an over 7% drop from the S&P 500 out of the gates. Before last week this circuit breaker hadn’t been activated since 1997.

This pandemic has sparked global panic, and the extreme measures the world is taking has shut down economies. A global supply shock has run ramped, and now demand is slowly disappearing as fear grips consumers. Retail storefronts and restaurants are closing their doors around the US in an effort to control this pandemic’s spread. Wall Street is in a frenzy, but Main Street businesses may be the ones that are really in trouble.

Large public corporations remain very liquid, and the banks are still well-capitalized. After the longest Bull-Run in US history, this crisis is going to uncover poorly structured businesses and inept management teams. Long-standing enterprises with savvy leadership and healthy balance sheets have little to fear in these turbulent times.

This novel virus is not going to last forever, and its death count remains relatively low (under 10K globally). Countries across the globe are taking every precaution from closing their borders to quarantining entire cities. China and South Korea have both proven an ability to control this virus, and it will only be a matter of time before western civilization follows suit.

According to a member of Stanford hospital board, the novel coronavirus (COVID-19) isn’t heat resistant and hates the sun, like its sister pathogen SARS, which unexpectedly disappeared in late spring of 2003. I am confident that with this information and the precautionary measures that countries around the world are taking, this virus will taper off in the next couple of months as spring approaches. Business will resume as normal when this virus is under control.

I’m A Buyer This Week

The S&P 500 is down over 26% from its highs last month, and I am going to begin buying this week starting today before the Federal government comes out with fiscal stimulus that I am predicting will mark the bottom of this market crash.

In times of fear and panic, monetary policy does little to alleviate anxieties. The markets want the US government to ensure their investment, business, and assets are supported. Once the markets feel that the US government will back businesses, fear trading will likely come to an end.

Right now, I am looking to upgrade my portfolio with blue-chip stocks that have robust balance sheets and bright futures. Some of the stocks that I am buying include Microsoft ( (NASDAQ:MSFT) ) and Adobe ( (NASDAQ:ADBE) ) as my cloud-plays. Both businesses provide essential functions for enterprises around the world that will remain loyal customers no matter the economic conditions.

People are shying away from financial stocks with interest rates plummeting, but some of these banks have fallen to valuations that are hard to ignore. JP Morgan Chase ( (NYSE:JPM) ) has lost 35% of its value over the past month, and its price to book has fallen to its lowest levels since the first half of 2017. Interest rate cuts will marginally hamper the company’s bottom-line, but the market has more than priced out this impact.

JPM is a best-in-class global financial services company that has a very diverse portfolio of product and service offerings. The company is a leading innovator/investor in financial technology, with a healthy balance sheet, and a savvy management team that has proven its ability to maintain its head in the best and worst of times.

Take Away

Volatility is at a high right now, and everyone is afraid to get into the markets. Nevertheless, if you can withstand the emotional toll that this short-term volatility might have on your portfolio, I would not hesitate to start buying.

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