Stock Market’s 15% Meltdown Sets Stage For Rebound

All major U.S. stock indexes melted down equally last week. On Friday, the DJIA, S&P 500, Nasdaq, Nasdaq 100 and Russell 2000 were all down about 15% from their recent February highs. Those similar results show indiscriminate selling — and that is a good thing.

Blanket dumping of stocks opens up a special opportunity for active managers. In times of turmoil, investment professionals can find attractive opportunities from among the beaten down, individual company stocks. (The last major market-delivered selloff benefiting active managers was early March 2009.)

Therefore, now is a great time to invest in actively managed funds run by the major fund companies that have sizeable analytical resources.

Disclosure: On Friday, author moved from 50% invested (in SPDR® Dow Jones® Industrial Average ETF Trust) to 100% invested by investing in actively managed funds from Fidelity (Contrafund) and Vanguard (US Growth and Explorer). The Vanguard funds are each managed by multiple investment management firms selected by Vanguard.

The coronavirus stock market effect looks overdone

Just look at the flood of articles with titles including “coronavirus” and “panic.” And yet, the real news is reducing the frightening uncertainties because we are learning about coronavirus. All those Americans flown from China and quarantined at the San Diego military base were released a couple of weeks ago. The percentage of infected people who have only a mild reaction = 80%. The percentage of deaths = 2%. And, perhaps most importantly, the infection spread will not be a precipitous disaster.

As the facts continue to emerge, the fear of the unknown will dissipate further. Following, the stock market analysts (and we) will then refocus on fundamentals.

Here is how last week set the stage for a rebound

First, the stock market hit a solid, strong barrier that provides buying support and confidence

Second, the blanket selloff that hit all the major indexes similarly confirms “panic” selling (and short selling)

Third, the 30-minute interval picture shows a waterfall, complete with three gaps down and Friday’s turnaround.

Fourth, the 30 DJIA stocks’ performance on Friday reveals active stock picking is at work.

The bottom line

Last week looks like a complete selloff. All those $T lost? Expect some of them to be found next week and after.

Hard to believe? Just think about the next coronavirus stage coming: Knowledge of how it works and what the general effects are, including percentages of seriousness and recovery.

When we are at that point, this stock market selloff likely will look like a great buying opportunity.

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