Thank You Chairman Powell

The Federal Reserve on Thursday (April 9th) announced unprecedented monetary stimulus actions to provide up to $2.3 trillion in loans to support the economy. These actions are in addition to the massive "quantitative easing" purchases of Treasury and Mortgage-backed securities that the Fed has carried out to ease liquidity problems in the financial markets over the last six months.

According to Fed Chairman Jay Powell in comments last Thursday, "Our country's highest priority must be to address this public health crisis, providing care for the ill and limiting the further spread of the virus. The Fed's role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible."

If we add up all the U.S. fiscal and monetary stimulus actions over just the last couple of months (actual and proposed), the number is approximately $5 trillion! Despite these actions, several major Wall Street investment firms are now forecasting declines in U.S. GDP of between 15% and 30% in the second quarter and an unemployment rate that could skyrocket to as high as 20%.

After plunging 35.4% in only 23 trading days between February 19th and March 23rd, the benchmark S&P 500 Index has rebounded 27.3% in just 13 trading days to last Thursday's recovery high. This recovery represents approximately 50% of the total decline from the February 19th all-time record high to March 23rd's reaction low.

In my last column dated March 18, I voiced a rare bullish call based upon sentiment numbers that reflected levels of extreme bearishness that often mark a bottom and also historically high insider buying numbers. Of course, massive Fed intervention to drive interest rates to near zero and to add liquidity to the financial markets allowed for justification to re-enter the stock markets on the long side.

So what now?

Even though investors are often safe by following the old axiom "Don't fight the Fed", I don't believe the current rally in stock prices (even with the Fed's support) can last without at least a test of the intra-day lows posted on March 23rd. In percentage terms, a fresh decline from last Thursday's closing price of 2,790 in the S&P 500 to near the late March low at 2,192 would represent a loss of approximately -20%! And given the uncertainties relating to the potential consequences from the current global pandemic (like massively NEGATIVE Q-2 corporate earnings and NO MEANINGFUL SHARE BUYBACK ACTIVITY), we just can't rule out an even steeper decline in what may be a persistent bear trend that penetrates the March lows before markets stabilize with several months of base building action ahead of the next potential meaningful rebound.

Falling Knives: Is It Time To Pick A Bottom In the U.S. Stock Market?

From its intra-day high at 3,393 on February 18th, 2020, the benchmark S&P 500 Index fell 32.8% to its intra-day low of 2,280 today March 18th, 2020.

You have to go back to October 1987 to find this kind of loss in just 30 days! And in my 45-year experience in trading stocks, I can never remember the day-to -day volatility that we've seen over the last month. 1000-point daily swings in the Dow Jones Industrial Average seem to be commonplace, and 10% single-day moves in individual stocks are now standard-fare.

United Airlines stock was down 30% today, and this company's share price saw a 78% decline from high to low since February 12, 2020.

In just three weeks, the Trump Administration's message on the CoronaVirus has gone from complete denial just three weeks ago to the most dangerous global threat since World War II now. Researchers at Goldman Sachs, a premier global financial giant, are now predicting that as many as 150 million U.S. citizens could be infected with this virus over the next several months.

With all this bad news, is it foolish to think that there may be a meaningful bounce in the U.S. stock market on the immediate horizon? NO, it's NOT foolish! I firmly believe it's now time to buy stocks!! Right now!

The U.S. Federal Reserve is firing all its cannons to fight the current liquidity crisis that has contributed to the massive decline in share prices over the last month. Global central banks now appear to be coordinating (at least tacitly) to support financial asset prices and stem the tide of selling. And now the Trump Administration and the U.S. Congress appear ready and willing to spend at least $1 trillion in fiscal stimulus over the very near term to boost the economy.

While I think precious metals mining shares are ready to lead the market higher, just buying the S&P 500 ETF (SPY) or Nasdaq-100 ETF (QQQ) should give you the diversified exposure you need to eliminate non-systematic risk and provide an extraordinary chance to post significant capital gains over a very short time horizon.