Where Is The Floor?
Todd Gordon February 28th, 2020
Traders, Investors, Todd here coming to you from the Ascent Wealth Partners offices. It’s been one hell of a week, but I do not feel this virus and potential political climate shift ahead of Super Tuesday is enough to derail the decade-long bull market. I had a nice time on the CNBC Fast Money desk last night and tried to calm nerves voicing my support of this market.
My point was, and what we’re seeing here today, is the stocks that HAVE led us higher WILL lead us up and out of this historic shakeout once cooler heads prevail. NVDA, AMD, MSFT, AAPL, and MA are all positive as I type and with idle cash in my retirement accounts I began adding these names in the last 10 minutes. I also have ample cash on hand from my new investors at Ascent and am lightly nibbling.
The fundamental argument I’ve heard in recent interactions is that you should not buy the pullback in these more expensive valuation stocks, and to favor cheaper valuations sectors. This problem with this is that will lead to continued portfolio underperformance, exactly like you saw since the H2 ’19 breakout. This is the first meaningful pullback post Oct ’19 lows, which was preceded by highly negative sentiment in the context of a simply rangebound market in 2018-2019. That disdain for the “surprising” rally from the 2-year range is manifesting into this historically sharp correction since Feb ’19. Once volatility abates and sentiment shifts, you will see a return to more normal trading conditions and I believe a resumption of the uptrend favoring the high growth, tech stocks that were, as of 2 weeks ago, being priced like they’ll shape our future. I don’t think anything has changed.
I believe there is one factor no considered here Todd. That is, the unique characteristics of the driver of this market correction. There is potential for exponential growth in CV infection rates around the world now over the coming weeks. With the “lock down” solutions being deployed, should that happen, the world economy will tank, and the market will crash in a “5 sigma” black swan type of event. Should this come to pass (let’s hope it doesn’t), I would expect SPX to fall to at least 2000. I don’t mean to alarmist, just realistic about possibilities. The short term upside is extremely (extremely) limited; the down side “tail risk” is enormous (with low probabilities, but far far higher than normal times!). “Protect yourself” is my general advice at the moment, it’s not time to thinking about buying in low prices…yet.