The good news was yesterday, we had a beautiful rebound, up limit, very strong at the close as President Trump was talking about all the stimulus he and Treasury Secretary Steven Mnuchin were going to be working on. The bad news: Today, we’re down because everybody wants to know how we’re going to pay for it.
I assume we’re going to have at least a $2 trillion deficit this year. Of course, they want to mail checks out to people immediately. What’s happening to the restaurant industry, the hospitality industry, and, of course, the travel industry is truly devastating. A lot of people that work in these industries just need money right now. So whatever relief the federal government is promising, hopefully they can get to the people as soon as possible.
In the meantime, retail sales were down for February; they kind of gave us a preview of what we’re going to have in March. It’s not going to be good, folks. March retail sales I’m sure are going to be down 10% or more.
In the market today, we saw somewhat of the problem we had last week: When the markets were oscillating, Treasury yields were going up. That is what caused the Federal Reserve to slash rates a full 1% to 0.00%-0.25% and inject $700 billion of quantitative easing.
So, we might need more quantitative easing. The Fed’s been very, very busy in the commercial paper market and other overnight markets, trying to provide liquidity.
I don’t want to see bond yields rise when the stock market is going down, and that’s what’s happening today. But I’m hopeful when I see that we’re only swinging 5% today instead of 10% like we had last week; that’s good. We want to see volatility just slowly start to subside.
I have folks asking me lately: “When should I put extra cash into the stock market?” I had originally anticipated that I could sound the “all-clear signal” for investors this week, because I was expecting a positive statement from the Fed, and we’d be back to dip our toes back into the market. But because we broke new lows last week, Monday and Tuesday, before the market took off in the afternoon, I think we need to see volatility subside and selling pressure to be exhausted.
There’s a couple of other things I want to see first, as well:
The main key is we need to know how long the national quarantine will last. If it’s two or three weeks, we can probably tolerate it. If it’s two or three months, that’s not good.
It’s going to be fascinating to see how things unfold. A fight is brewing with the Tesla (TSLA) plant in Fremont because the sheriff declared them nonessential and they need to basically curtail operations with skeleton staff. That fight’s not over – and meanwhile, the United Auto Workers want to go on at least a two-week break.
So, when will the factories and everything resume? Well, the virus is killed by heat and humidity, and beautiful spring weather is emerging. So, let’s just hope it gets hot, fast. I think the market volatility should wind down here a bit.
I also think if earnings start to work, then maybe in the first couple weeks of April, we might be able to tip-toe back into the market. But we do need to see fundamentals return. And, again, we need guidance on when will this quarantine cease (and the economy come roaring back). People are going to be going stir crazy, so this is going to be quite interesting.
Volatility is starting to wind down, but for now, I recommend that we all sit tight for a little longer: see how the Federal Reserve proceeds, see how earnings start to come in, and see if the selling pressure is exhausted.
One other note, folks. If you watch the market, all the action is in the beginning and the end of the market. My advice is, in the middle of the day, just don’t watch it. Decisive moves will be made in the first and last hour of trading.
We are beginning to see many of my recommended stocks start to bounce, especially yesterday. And the fact that the Dow is literally yielding four times the 10-year Treasury is very, very encouraging to me. I’d rather be in dividend stocks than bonds! We just need the market to recognize that.
One of my bigger dividend stocks is called Arbor Realty Trust (ABR), it’s a REIT down in New York, they announced a big stock buyback the other day; that’s good news. There’s a lot of incredible yields out there. I’ll let you know when you can take advantage and jump back in – I think it’s going to be early April. In the meantime, take care.