Recent stock rebound may be opportunity to recalibrate portfolio into gold, treasuries and safe money sectors, writes Mike Larson.
It’s official. We just closed out the worst quarter for stocks worldwide since the depths of the Great Financial Crisis.
We knew a bear market was bound to happen sooner or later, and the longest-running bull market in history couldn’t last forever. Just as the Coronavirus — the trigger event for the selloff — was unexpected, the severity of the selloff when the bear did swipe was as well. The Q1 2020 numbers are in.
The MSCI All Country World Index plunged roughly 21% in Q1 2020. That was the global benchmark’s worst quarter since Q4 2008. But even those dismal figures mask how some regions of the globe performed worse.
European stocks logged their biggest decline since 1987. That was the year the Dow Industrials suffered the biggest one-day stock market meltdown in history. Australia’s market tanked 24%. That was its worst quarter in history.
But of course, those are just market figures, tabulating wealth lost in stocks on Wall Street. The “real economy” costs on Main Street, impacting your everyday life, are much worse than 1987. In fact, they’re on track to be worse than the Great Depression, which is why I see more pain ahead.
I’m not alone. The St. Louis Fed released a more-detailed version of the potential “worst case” scenario for the U.S. economy.
Their conclusion? Some 47 million Americans could lose their jobs, driving the unemployment rate to a staggering 32.1%. One reason is that so many citizens work in jobs that are at a higher risk in this particular, virus-driven downturn – 67 million.
But even more optimistic projections are anything but deserving of the word. Goldman Sachs just projected the economy will shrink at an astonishing annualized rate of 34% in Q2, far worse than its previous -24% projection. Unemployment would jump to 15%, much higher than an earlier 9% estimate.
To be sure, Goldman expects a sizable rebound later in the year as the virus outbreak ebbs. And $6 trillion (and counting) in aggressive monetary and fiscal stimulus will head off some of the shorter-term damage. That’s because it’s designed to give companies money to tide them over for several weeks or a couple of months, avoiding some furloughs and layoffs.
But just in the past few days, retailers like Macy’s Inc. (M), Gap Inc. (GPS), L Brands Inc. (LB) and Kohl’s Corp. (KSS) said they would furlough hundreds of thousands of employees combined. Some workers will receive partial pay or health benefits for a period.
But moves like that will no doubt result in even more dismal jobless claims figures in the coming weeks as furloughs end and turn to full-on unemployment. Jobless filings soared to a record 3.3 million last week and are estimated to hit 2.7 million this week.
Bottom line? We’ve seen a short-term bounce thanks to policy moves that injected additional liquidity into markets. But rather than add exposure into that bounce, I’d use it to get your portfolio into better shape. How so?
If you were suffering enormous losses on high-risk, high-yield bonds or junky stocks several days ago, use the bounce to dump them, and don’t look back. Move to quality.
If you didn’t have any gold or Treasuries in your portfolio, use the short-term pullbacks in assets like those to get on board. This will add some much-needed diversification.
If you were completely unhedged, use stock market bounces to add things like inverse ETFs or put options at better prices. They can provide downside protection that offset losses elsewhere in your portfolio, or even in the value of real estate or businesses you may own.
These kinds of “Safe Money” strategies worked out very well for our readers and subscribers who followed them in the last two major downturns. With another unfolding here, there’s a very strong likelihood they will again.
