Your Week In Brief

Don't trade on the headlines! But, you know, trade on the headlines.

Author: Gregory Bergman   

This was a bad week.

The Dow experienced the biggest single-day drop in both percentage and points since February 2018. The S&P, the world's biggest and most liquid index, fell more than 10%. The Nasdaq also got slammed. All in all, it was the worst week for the major U.S. indices since the financial crisis of 2008.

But this isn't 2008, and the American economy, while divorced from the overall economy to an unhealthy degree (remember when Fox News reminded us daily that Obama's rising stock market was not a reflection of the economy only to now point to it and other metrics as proof of Trump's inherent financial wizardry?). Or how about when their pundits relentlessly pointed out unemployment figures didn't take into consideration people permanently out of the workforce? I do.

We have an affordability crisis in this country, where the average American is one paycheck away from financial ruin and one unforeseen medical bill can send a so-called upper-middle-class person from his or her new California King memory-foam mattress with the West-Elm headboard to the shelter in a matter of months. But that has been the case for decades, and that is not what we are talking about. We are talking about the economy and its performance using the same arguably outdated metrics. 

It's the Virus (Not the Economy), Stupid...

This isn't 2008, and analysts a Goldman Sachs and others predicting a recession, especially a prolonged recession, are wrong. Again, this doesn't mean you can't vote for Bernie Sanders; the average American has $500 in savings -- something is wrong here. 

But a recession? No, here's why:  

1) The housing market in the U.S. continues to perform well

New home sales increased by 764,000 units in January, beating estimates, and it was the highest level of new home sales since July 2007. Low mortgage rates, along with low unemployment and steadily growing wages, have helped the U.S. housing market regain momentum in the past months. 

The median price of a new home sold in January was $348,200, while the average was $402,300.

2) Gold is not a "buy" 

Investors go to gold when the U.S. economy looks weak and in times of uncertainty. Uncertainty surrounding the virus has pushed gold prices up 6% but it has now steadied. If you were thinking of getting into gold short term, it is too late. If you are thinking about getting in the mid-term, do not. China is the world's biggest gold buyer and if any country's economy is going to be badly hurt by the virus -- it is China. Also, India is the second-largest buyer of gold and recent civil unrest will lower gold demand there too.

3) Unemployment is low, and wages are growing

Again, this doesn't take into account that half of Ohio is on disability, taking opioids and waiting for the Browns to get their act together, nor does it mean that wages have risen or will rise anywhere near where they need to be to offset the rising cost of living. But it means something. Namely, things are not suddenly getting worse economically. 

4) Consumer confidence is high

In the consumer-driven economy of the U.S., this is a key indicator of overall economic health. Optimism and perception are even more critical in the markets; let's hope some of that confidence rubs off on investors. 

5) Utilities have not outperformed tech

I have nothing to add here, save the fact that someone much smarter than me told me this was important.

The Market and the Economy Have Long Been Divorced

This fact, as mentioned in the Obama / Stock Market point above, is indeed true. And everyone knows the market is going to get worse before it gets better, and that this panic won't disappear overnight. That said, every positive economic statistic is one more reason to keep hugely-leveraged investors from selling everything and cashing out on what has been an epic bull run. 

We want to remind them of this, just as we want to remind them that more people die of the flu in a day than have died from the coronavirus so far -- and no one sells stock because it's flu season. Panic is the real enemy. And if big-time investors do sell off and kill the market, let's just hope they spend their new cash on vacation via any major cruise line headed East. 

This Stock is Not a Lemon

The stock in Lululemon (Nasdaq: LULU) got slammed after announcing that the majority of its 38 locations in China not only are now closed, but in fact have been closed since Feb. 3.

Zachs research is still bullish on LULU's earnings, however. I agree. LULU is strong and has 460 stores worldwide -- a temporary closing of some stores is not going to kill the company -- or the stock. I would take a look back at this stock in two to three weeks, watch its movements and then pick it up for a long-term play. This is a "buy" for no other reason than they make yoga pants and women love them some yoga pants. In New York, they will wear them in winter and in summer, in sickness and in health. 

That said, if the 82,000 confirmed cases in six continents become 820,000 on seven continents (sorry, scientists in Antarctica), then run from this stock. Because as popular as yoga pants may be, everyone I know wants to be buried in a suit. 

Bet on Bezos -- and the Chinese Bezos

If you want a safe bet, go to Amazon (Nasdaq: AMZN). Amazon fell 8% in three days. While the virus may impact its retail business, AWS, Amazon's cloud computing service won't be as affected. And AWS is where Amazon sees a significant part of its growth. Yes, Amazon has a notoriously high P/E ratio, but I would bet on Bezos long term. If you have it, hold it. If you do not, keep an eye on it over the next couple of weeks and see how low it goes before buying in. If the stock falls down to $1,200 per share or so, which is a long way down, buy it. Amazon's stock long term will rise until Bezos decides to sell all of his shares and send his evil robots to kill us all. 

The same goes for online giants in China like Baidu (Nasdaq: BIDU), Alibaba (NYSE: BABAand Tencent (OTC: TCEHY). Alibaba has a P/E ratio of 48 while Amazon's is almost 100% higher at 85. These companies are safe bets during the crises. Like Amazon, if you have them -- hold them. If you don't -- wait until early next week before you buy in to see what the market does before you get in. These are perfect stocks for a novice investor who always wanted to get in on these big players but missed the boat. 

The Coronavirus Craze 

For short term speculative plays, you got to head towards the virus, not away from it. (Note: to my non-English speaking Chinese readers, this is a metaphor).

Stocks working on a vaccine or better testing for the virus have hit big, even on relatively unsubstantial news at a closer look. 

Tonix Pharmaceuticals (Nasdaq: TNXP) jumped from 42 cents this week to $1.96 per share on Thursday. This small company did close to 300 million shares in two days; average volume hovers around 1 million to 2 million. The company announced it was in a collaboration with Southern Research to develop a vaccine for the coronavirus. Just a collaboration to develop a vaccine, not even talking about Phase 1 trials here. The stock fell back down to $1.05 per share midday Friday. Wait on this one to go under 80 cents and then take a chance on it. 

Another stock, the coronavirus-testing Co-Diagnostics (Nasdaq: CODX), rose from under $5 to over $10 per share to $19.24 per share on Thursday. The company announced it had received a CE Mark or certification mark for its test, which indicates its test is compliant with health and safety standards that allow it to be sold in the European Economic Area. The stock was trading at around $14 per share as of midday Friday. I would wait until it goes under $10 per share, then buy in and wait for more news on its vaccine to play the next momentum swing. 

The fact that investors are playing the coronavirus craze at all in this environment is a good sign.

Moderna (Nasdaq: MRNA) went wild when it announced it had shipped the first vials of its coronavirus vaccine for the virus to the National Institute of Health, to be used in planned Phase 1 study in the U.S. This is significant news but we are still talking about Phase 1. The stock went up and down; I would wait until Monday and see where it closes before thinking of jumping in on Monday. Mid-term and long-term, this stock is a buy. 

Bearing in Mind Mr. Buffet 

As I write this, the market continues to dive into the abyss. But by the end of next week, the markets will, at the very least, fall no further. Then again, the S&P could lose 50% of its value and the market, despite the solid economy, could collapse, in which case that extra $500 most Americans have in cash savings will come in handy. For those of you with a little more cash, there are real opportunities here in this falling market. If you want to gamble big, bet on small companies with virus-fighting or testing products. But trade carefully. Keep your surgical mask on and your broker on speed dial. For the safest bet, look for companies with limited exposure to Chinese manufacturing and/or a mostly American consumer base.

Remember to heed the sage advice of legendary Warren Buffet and "don't buy or sell on the headlines." Actually, buy stocks you normally would on solid fundamentals that are trading down on concerns over the virus. 

In other words, don't trade on the headlines but, you know, trade on the headlines. 




(The opinions expressed in this editorial do not reflect the position of CapitalWatch or its journalists. The author has no positions in any stocks mentioned, no plans to initiate any positions within the next 72 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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