Warren Buffett advocates buying stocks on the cheap — more aggressively so during periods of extreme weakness — and holding them forever. But for the average investor absent Buffett’s billions, Monday’s coronavirus-triggered stock plunge may be a point in which to raise some cash and ride out the economic storm.
“It does seem a bit like the fog of war,” Brown Brothers Harriman Chief investment strategist Scott Clemons said on Yahoo Finance’s The First Trade, about the near-term global economic outlook. “The other thing we are being reminded of is how very tight and short supply chains are. The ripple effect of this we will see more in corporate earnings than we are in domestic U.S. activity. But yes, the economic hit and to earnings is going to be meaningful — we don’t know yet, it’s still sort of the fog of war at this point.”
And judging by Monday’s action in the markets, investors hate dealing with fog.
The Dow Jones Industrial Average crashed nearly 1,000 points in early afternoon trading amid rising coronavirus fears. Gold has climbed to seven-year highs. The 30-year Treasury note has hit a record low. The 10-year Treasury note dove to a paltry 1.39%.
Traders have flooded into the U.S. dollar as a safe haven, with the strength likely to add further pressure to multinational company earnings in the first quarter. That’s the last thing big companies need as they contend with rising supply-chain costs, thanks to the coronavirus.
As for equities, momentum stocks such as Advanced Micro Devices and Nvidia have been hammered Monday. Companies exposed to global travel like Disney and American Express also fell hard. The lone Dow component in the green, Yahoo Finance parent company (and long-time safe haven) Verizon Communications.
The weekend news flow on coronavirus justifies the full-blown risk-off session.
Italy’s confirmed coronavirus cases spiked to 150 on Sunday from three on Friday. The country has quarantined several cities in the hopes of preventing the spread of the disease. South Korea has reported hundreds of fresh infections. Iran has said at least 12 people have died. Meanwhile, the numbers of those infected continues to rise in China and Japan.
What could be a budding global pandemic stands to wallop the bottom lines of companies. While investors ignored coronavirus for most of 2020, they are now realizing S&P 500 earnings estimates remain way too high. Ditto the valuations on those projected earnings, which recently climbed back to 2002 highs.
“We are now in a bout of economic uncertainty. This is the fourth biggest slowdown of this cycle, and the market is going to reflect that,” said Invesco global market strategist Brian Levitt. “This is a time where you are a more tactical investor to be in the more defensive parts of the market. Health care tends to be one of those parts of the market.”
Clemons added, “We are telling clients to get your flu shot, wash your hands and stay invested.”
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.