Thousands of stocks, globally, are getting killed as investors shed equities in the face of mounting coronavirus infection rates and deaths.
As bad as it’s been for global stock markets, it could get a lot worse if the number of deaths attributable to the virus, which two days ago was 1,075, increases dramatically along with infection rates and most frighteningly, mortality rates.
The World Health Organization (WHO) estimates the blended global mortality rate from the coronavirus is 2%.
That blended rate incorporates some countries’ mortality-to-infection rates at zero, some as low as .001%, China’s national rate of 2.1%, and the 4.9% rate in Wuhan (the epicenter of the virus).
The big selloff yesterday, as broad and deep as it was, coming on huge volume, wasn’t unexpected.
Historically, some of the markets’ biggest drops have come on Mondays.
Typically, the previous week’s selling, whatever triggers it, crescendos on Friday afternoon before markets close for the weekend.
As scared investors worry that more bad news over the weekend will tank stocks on Monday, they sell futures, which draws attention to Monday’s expected weak opening – making a Monday selloff almost self-fulfilling.
Coronavirus fears triggered all that last week with investors shedding stocks going into the weekend and selling futures right up to the open. That’s why Monday’s big selloff wasn’t unexpected.
But it wasn’t panic selling. For the most part, selling Monday was orderly.
The worst news of the day was benchmark indexes couldn’t bounce and ended near intraday lows.
What’s happening right before our eyes is investor psychology turning negative.
The question investors should be asking now is, will more negative news and fear trigger panic selling?
Last week’s Capital Wave Forecast was a hard break from the bullish stance we’ve been enjoying.
I said on Tuesday, “This Capital Wave Forecast is your first warning. Markets are overly optimistic, have risen too far too fast, and are prone to a correction in the coming weeks.”
That abrupt turnaround last week came on the heels of a long weekend of research into how high and how fast benchmarks had moved up in the face of the coronavirus spreading, as opposed to the fake news out of China that infection rates were slowing.
Equities were moving higher in anticipation of a quick resolution to the spreading virus, mostly fueled by new cash plowing into “passive” funds.
In this week’s Capital Wave Forecast – published Tuesday because Monday was President’s Day – right up top, out front, out loud, and against a very, very long string of very bullish Forecasts, I declared, “This Capital Wave Forecast is your first warning. Markets are overly optimistic, have risen too far too fast, and are prone to a correction in the coming weeks.”
Without hesitation (Wednesday’s dead cat bounce notwithstanding), it’s begun.
Right now, we’re seeing profit-taking.
If there isn’t positive news on the spreading coronavirus, named Covid-19, we’ll see net selling.
In the course of another couple of weeks, if we don’t see actual proof that infection rates are slowing and deaths don’t start declining, we’ll see bouts of panic selling which could, in short order, foster a correction – potentially taking markets down 20%.
In Part III of my It’s All Good Until It Isn’t series on ETFs, I remind ETF investors of the pain and losses the August 2015 Flash Crash caused, make clear what really happened, and explain why it will happen again.
And, I offer advice on how to avoid the same mistakes and losses next time.
At least until you dig a lot deeper into what everyone loves about them, how supposedly liquid they are, and what risks the “sponsors” and “authorized participants” who create, redeem, and trade them and all their underlying parts, really pose to the $5 trillion industry.
When it comes to ETFs, the truth is, it’s all good…until it isn’t…
If it doesn’t get its troubled 737 Max planes certified by U.S. and international regulators and in the air by this summer, it’s dwindling cash and negative cash flow from operations will implode its stock.
But, unfortunately for them, the 787 Max isn’t Boeing’s only aircraft problem.
Regulators are investigating the company’s 787 Dreamliner over whistleblower claims that its oxygen systems don’t work, that managers let defective parts get through quality control checks, and that, when workers installed planes’ floorboards, they let three-inch-long razor-sharp shards of titanium fall the plane’s sensitive electronic equipment.
But, also, despite all its problems, Boeing isn’t going out of business. It’s too important to the American military and the U.S. economy.
But that doesn’t mean it’s not too big to fail (in terms of its stock price).
Investors should be asking themselves what to do with Boeing shares at a time like now: buy, sell, or hold?