by Jason Bodner

March 3, 2020

WHAT. WAS. THAT?

The market fell more than 15% in less than seven trading days. It feels scary, catching investors like a deer in the headlights. Selling came from nowhere. Yes, I did warn you that a pullback was coming; but of course, no one could have predicted a global coronavirus pandemic trashing the markets.

All stocks and sectors were slammed. The market’s fear is that the virus will affect businesses. If entire towns and companies stop doing business, people will stay home, fearing infection. They will stop spending money. With Japan and Germany, amongst other countries, nearing recession territory, the fear is that a global slowdown will push the U.S. into a recession too. Panic selling is rocking world markets.

CONSIDER THIS:

According to the latest data, there are 87,701 confirmed cases of coronavirus as of last weekend, with 2,995 confirmed deaths (a 3.4% death rate). Nearly half (42,687) have recovered and 42,019 cases are still active. Some 96% of the deaths and 91% of the cases are in China, with 4% of the cases in South Korea.

Sickness and death are very serious subjects. I don’t make light of any of this. It’s terrible and tragic. But I’m a numbers guy. Current reports translate into only 0.001% of the world’s population having contracted coronavirus. That means logically that 99.999% of the world does not have it (yet). And 0.00004% of the world has died from coronavirus, many of them elderly with a preexisting condition.

As of February 22, the current flu season has seen at least 32 million cases of flu in the United States alone, with 310,000 hospitalizations and 18,000 flu deaths, according to the CDC (and that’s slightly below par). Over 100 Americans die on average each day from car wrecks. That’s 36,500 people a year in the U.S. dying a violent death on the roads in a country with less than 5% of the global population.

Look, I don’t want to see this coronavirus spread. I don’t want my wife, kids, family, friends, or even my enemies to get it. So, I wash my hands often and cover my mouth when I sneeze or cough – things my mom taught me to do as early as I can remember. Buying surgical masks doesn’t do much good. It does more to protect corona from getting out of the wearer rather than preventing corona getting into the wearer. And paying panic prices for a mask to poorly protect you against a virus statistically far less likely to kill me than a car-crash seems like an overreaction. And so does selling a lot of good stocks.

Don’t forget, stocks aren’t just numbers on screens. They are shares of businesses providing services and products to individuals like us. We still need to feed and clothe ourselves. That’ll never stop. Neither will business. So, what makes a global stock (business) worth 20% less than last week?  The answer is fear.

How Sell-offs Happen These Days

Stocks are getting punished for a few reasons, some of them reasonable, but then panic takes over.

  • Algorithmic traders (algos) and computers run the market these days. To simplify, computers seek bad news, then they sell stocks. If sells get gobbled up, machines know not to short, so they cover, reverse, and buy. If stocks go lower when they sell, they sell more. This happens many times each second, and with everyone too scared to buy, markets plummet. Humans pause when afraid. We stop buying stocks. We wait and get paralyzed. When markets stand at all-time highs (as on February 19), news of a new and terrifying virus from China threatened global health and economies. The media overdramatize and scare people into watching. Don’t forget: News makes money off advertising. If people don’t watch, ads don’t get seen, and products don’t sell. Sadly, fear is the biggest seller of all, so the media loves a good panic. They fan flames and whip viewers into a frenzy. It’s good business.
  • Stops get triggered: As stocks rise, investors put in protective trailing stops. I don’t like those. I’ve been stopped out, only to watch stocks race higher. But investors don’t want to lose money. When markets go down sharply, those stop orders get triggered, which causes even more selling.
  • Mob rule takes over. Hedge funds have risk managers, who tell traders to lighten up on their long exposure. Hedge funds often crowd into the same trades. When everyone rushes to exit simultaneously, things get ugly fast. More selling happens…
  • Main Street gets nervous. After a few days and a few thousand Dow points, people like you and me call our broker and say, “I can’t lose another 10%. Sell and I’ll revisit when this craziness calms down.” Mom and pop are usually ETF investors. Brokers then sell their ETFs, which are mostly baskets of stocks. When big banks like JP Morgan make markets for your brokers, they bid on the ETF. The broker sells it to the bank, which has to hedge by selling stocks. They don’t want long-risk in a diving market. Their job is to profit daily, not to take a long view. That causes even more

All of this cascades down until the eventual washout happens, when there is no one left to sell to. That’s usually when the V-shaped recovery begins. You can see examples of epic V-shaped ETF selling here:

Epic Number of ETFs Getting Sold Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

This is how stock sell-offs have happened several times during the last 11 years of this bull market.

What Am I Doing Now?

I am not selling. I have a long-term view. I don’t believe that a restaurant selling burritos is worth 20% less than last week. So, I buy a little. And when it goes lower, I buy a little more, if I believe in their business. If I see the lines out the door, I know they have a hit on their hands, and if there’s a temporary interruption because of irrational fear, it won’t last forever. They won’t go bust, so I buy it “on sale.”

I’ve been buying stocks slowly on the way down, picking my spots and putting long-term money to work. (That’s money for my retirement, for my kids, and for my family.)

Here’s the good news. When fear peaks, people from years ago contact me. Old friends I haven’t heard from in ages text me. They send short notes like these:

  • “still bullish?”
  • “are you buying here?”
  • “How low can we go?”

That’s a signal to me that we could be close to the bottom, because that’s when people are reaching their breaking points. They see their 401k’s dropping and can’t stand the pain. It means we are close.

Besides, what other options do investors have with their money? Stocks are still the best place to be.

The 10-year Treasury note yield is now a miniscule 1.127%, the lowest on record, at least since 1962. Panicked investors buy bonds, pushing down yields. They’d rather earn barely 1%, just for the safety of knowing that the U.S. government is holding their money.

The S&P 500 dividend yield is 1.97%, nearly twice the 10-year yield. Dividends are taxed at a maximum 23.8% vs. bonds at 40.8%. That means stocks give you 125% more than bonds. That’s incredibly bullish. And when the 30-year yield is less than stocks yield, that’s crazy bullish. Today the 30-year yields 1.67%.

Best Yields Table

When Should I Get Involved?

“So, when do I buy?”

Great question. Going back to 1990, Mapsignals data showed 27 times that selling on a particular day was more than eight times the 50-day average. Three of those days happened last week! After that, the average 1, 3, 6, 9, and 12-month returns were significantly higher for stocks. Three months later, the S&P 500 was higher 20 of 24 times, and nine months later (Thanksgiving 2020 in this case), stocks were an average 20.3% higher, and stocks rose in all 24 of 24 cases. Here are the results:

Map Signals Days of Selling Table
Map Signals Days of Selling 50-Day Average Chart

As for when to buy, the average trough in the market occurred 21 calendar days later, or three weeks. So, according to this data, three weeks from Friday, about March 20, we can expect the market to trough-out.

CONCLUSION

Great companies will continue in their greatness. Even after the 1929 crash, the 2000 tech bubble, 9/11, and the 2008 financial crisis, great companies emerged and made some smart people wealthy.

These are the types of companies I am buying – great businesses with wide moats, strong sales and earnings growth (even if temporarily disrupted by pandemic fear), profitability, and big-money ownership.

Long-term investors should pounce when great companies go on sale. The problem is that fear paralyzes people and they fail to act. Fear may propel markets lower near-term, but buying great companies on sale is a gift, so here’s my closing quote, song lyrics by Haven Gillespie, written for a 1934 Macy’s broadcast.

“You better watch out
You better not cry
You better not pout
I’m telling you why
Santa Claus is coming to town!”

All content above represents the opinion of Jason Bodner of Navellier & Associates, Inc.

Please see important disclosures below.

Also In This Issue

A Look Ahead by Louis Navellier
Ultra-Low Treasury Yields are a “Screaming Buy” for Stocks

Income Mail by Bryan Perry
Power Play for Income Makes Perfect Sense

Growth Mail by Gary Alexander
The Media Make Bad News Sound Worse

Global Mail by Ivan Martchev
A Hitchhiker’s Guide to Coronavirus

Sector Spotlight by Jason Bodner
Panic Selling Rocks Markets…What to Do Next

View Full Archive
Read Past Issues Here

About The Author

Jason Bodner
MARKETMAIL EDITOR FOR SECTOR SPOTLIGHT

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner

Important Disclosures:

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier’s judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not a solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.To the extent permitted by law, neither Navellier & Associates, Inc., nor any of its affiliates, agents, or service providers assumes any liability or responsibility nor owes any duty of care for any consequences of any person acting or refraining to act in reliance on the information contained in this communication or for any decision based on it.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report. Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The holdings identified do not represent all of the securities purchased, sold, or recommended for advisory clients and the reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for every investor. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Index is unmanaged and index performance does not reflect deduction of fees, expenses, or taxes. Presentation of Index data does not reflect a belief by Navellier that any stock index constitutes an investment alternative to any Navellier equity strategy or is necessarily comparable to such strategies. Among the most important differences between the Indices and Navellier strategies are that the Navellier equity strategies may (1) incur material management fees, (2) concentrate its investments in relatively few stocks, industries, or sectors, (3) have significantly greater trading activity and related costs, and (4) be significantly more or less volatile than the Indices.

ETF Risk: We may invest in exchange traded funds (“ETFs”) and some of our investment strategies are generally fully invested in ETFs. Like traditional mutual funds, ETFs charge asset-based fees, but they generally do not charge initial sales charges or redemption fees and investors typically pay only customary brokerage fees to buy and sell ETF shares. The fees and costs charged by ETFs held in client accounts will not be deducted from the compensation the client pays Navellier. ETF prices can fluctuate up or down, and a client account could lose money investing in an ETF if the prices of the securities owned by the ETF go down. ETFs are subject to additional risks:

  • ETF shares may trade above or below their net asset value;
  • An active trading market for an ETF’s shares may not develop or be maintained;
  • The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track;
  • The cost of owning shares of the ETF may exceed those a client would incur by directly investing in the underlying securities; and
  • Trading of an ETF’s shares may be halted if the listing exchange’s officials deem it appropriate, the shares are delisted from the exchange, or the activation of market-wide “circuit breakers” (which are tied to large decreases in stock prices) halts stock trading generally.

Grader Disclosures: Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. The sample portfolio and any accompanying charts are for informational purposes only and are not to be construed as a solicitation to buy or sell any financial instrument and should not be relied upon as the sole factor in an investment making decision. As a matter of normal and important disclosures to you, as a potential investor, please consider the following: The performance presented is not based on any actual securities trading, portfolio, or accounts, and the reported performance of the A, B, C, D, and F portfolios (collectively the “model portfolios”) should be considered mere “paper” or pro forma performance results based on Navellier’s research.

Investors evaluating any of Navellier & Associates, Inc.’s, (or its affiliates’) Investment Products must not use any information presented here, including the performance figures of the model portfolios, in their evaluation of any Navellier Investment Products. Navellier Investment Products include the firm’s mutual funds and managed accounts. The model portfolios, charts, and other information presented do not represent actual funded trades and are not actual funded portfolios. There are material differences between Navellier Investment Products’ portfolios and the model portfolios, research, and performance figures presented here. The model portfolios and the research results (1) may contain stocks or ETFs that are illiquid and difficult to trade; (2) may contain stock or ETF holdings materially different from actual funded Navellier Investment Product portfolios; (3) include the reinvestment of all dividends and other earnings, estimated trading costs, commissions, or management fees; and, (4) may not reflect prices obtained in an actual funded Navellier Investment Product portfolio. For these and other reasons, the reported performances of model portfolios do not reflect the performance results of Navellier’s actually funded and traded Investment Products. In most cases, Navellier’s Investment Products have materially lower performance results than the performances of the model portfolios presented.

This report contains statements that are, or may be considered to be, forward-looking statements. All statements that are not historical facts, including statements about our beliefs or expectations, are “forward-looking statements” within the meaning of The U.S. Private Securities Litigation Reform Act of 1995. These statements may be identified by such forward-looking terminology as “expect,” “estimate,” “plan,” “intend,” “believe,” “anticipate,” “may,” “will,” “should,” “could,” “continue,” “project,” or similar statements or variations of such terms. Our forward-looking statements are based on a series of expectations, assumptions, and projections, are not guarantees of future results or performance, and involve substantial risks and uncertainty as described in Form ADV Part 2A of our filing with the Securities and Exchange Commission (SEC), which is available at www.adviserinfo.sec.gov or by requesting a copy by emailing info@navellier.com. All of our forward-looking statements are as of the date of this report only. We can give no assurance that such expectations or forward-looking statements will prove to be correct. Actual results may differ materially. You are urged to carefully consider all such factors.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE:The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters’ reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades.  Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier’s composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report.

FactSet Disclosure: Navellier does not independently calculate the statistical information included in the attached report. The calculation and the information are provided by FactSet, a company not related to Navellier. Although information contained in the report has been obtained from FactSet and is based on sources Navellier believes to be reliable, Navellier does not guarantee its accuracy, and it may be incomplete or condensed. The report and the related FactSet sourced information are provided on an “as is” basis. The user assumes the entire risk of any use made of this information. Investors should consider the report as only a single factor in making their investment decision. The report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. FactSet sourced information is the exclusive property of FactSet. Without prior written permission of FactSet, this information may not be reproduced, disseminated or used to create any financial products. All indices are unmanaged and performance of the indices include reinvestment of dividends and interest income, unless otherwise noted, are not illustrative of any particular investment and an investment cannot be made in any index. Past performance is no guarantee of future results.