A Wild and Crazy COVID-19 Market

The world weighs on my shoulders

But what am I to do?

You sometimes drive me crazy

But I worry about you…

— RUSH, “Distant Early Warning”

This extraordinary, wild and crazy COVID-19 market has seen more volatility in the past two weeks than it has ever seen.

Last week, stocks suffered their worst plunge since the 2008 crash. Then, on Tuesday, the Dow had its best one-day gain (11.37%) since 1933!

That giant gain on Tuesday was followed by more buying on Wednesday and Thursday. Indeed, the key catalyst for the three days of gains was the agreement in the Senate on the massive $2.2 trillion coronavirus bailout. The implications of this bailout for society will no doubt have very mixed consequences, and I wrote about some of those consequences in Wednesday’s The Deep Woods.

Strictly from a market perspective, the combination of the big stimulus package and the equally big move by the Federal Reserve to basically buy anything and everything out there (Treasury, municipal and corporate bonds) via printing unlimited amounts of money has allowed money to come back into the market.

This morning, however, we’ve seen a pullback in the major indices, which is to be expected, given the big gains early in the week. Still, the market is on pace to have one of its best weeks in a very, very long time. That is a much-needed positive.

Unfortunately, I suspect that this market rebound is tenuous at best, because what the market really wants is to see is a decline in the rate of the expansion of new coronavirus cases.

So far, there’s been the opposite of a decline in the rate of new cases in the United States, although in the places that took the worst beating (such as China and Italy), things are improving on the transmission front.

Until we can “bend the curve” lower in terms of the growth of coronavirus cases and until this metric starts to markedly improve, we cannot say for certain whether we’ve put in a bottom in stocks.

The bottom line here is that markets screamed higher early in the week on the aforementioned joint stimulus efforts by the Fed and Congress. They also did so because of short covering and the hopes of a quick rebound. Yet, I do caution you not to think that this market volatility is over, because it’s not. We’re seeing that reality in trading early on Friday morning.

As for our holdings, this week’s gains in large-cap stocks gave our Income Multipliers a welcome boost, as all 20 made a nice rebound over the past five trading sessions. In fact, nine of those 20 were up by double-digit-percentages, including the following:

Automatic Data Processing (ADP), +16.2%

Caterpillar (CAT), +10.2%

Cummins Inc. (CMI), +11.2%

Exxon Mobil Corp. (XOM), +11.6%

General Dynamics (GD), +13.7%

Lowe’s (LOW), +27.4%

Medtronic (MDT), +16.1%

Union Pacific (UNP), +18.6%

Zimmer Biomet (ZBH), +10.5%

That’s a very good week, indeed. It’s what I will expect going forward when money returns to this extremely oversold market. Will there be more tumult, more craziness and more volatility along the way? I think there will.

Will the markets return to where they were when we started the year? I think they will. But when that will happen is anyone’s guess. And though we don’t know when we’ll get back all these lost gains, I do think that, given this COVID-19 craziness, any great news on the war against the virus (new treatment, a vaccine, a serious reduction in the number of new cases globally) will allow this market fill up our portfolio pockets like a skyrocket.

So, please continue to stay strong in the face of the coronavirus craziness. This too shall pass, and when it does, we will all be a lot stronger for it.

In the name of the best within us,

Jim Woods

Editor

Intelligence Report