Market Correction Underway – A Reason to Worry?
The United States Financial markets are selling off hard today with all three of the major averages down 6-7%. It has been my experience that market corrections often evolve over several weeks. The current pull back is more acute with all the selling occurring at once. Very unpleasant, yet most were questioning why the markets were rallying anyway with all the uncertainty surrounding COVID-19 and restarting the U.S. economy. Even more importantly, investors are questioning what happens in the Fall when a second round of the virus is expected to emerge. I suspect the selling in the United States Financial markets will continue for a while. Market corrections are necessary and usually result in the averages losing 10-15%. They help to eliminate the weak hands in the market. The 47% V shaped market rally from the March 23rd lows was significant and some of those market participants were poised to take profits.
What a difference a day makes. Wednesday we had four of the five largest technology names on the NASDAQ all close at record levels. Should you have taken profits? Here is where I beg to differ. I think the most successful investors are the ones who buy stocks and hold them for the long term. If you try and buy and sell eventually you will have trouble. Timing the market tops and bottoms is almost impossible. I use market corrections to add to positions I like, and I don’t tend to sell stocks during market volatility or corrections. It is good to have a shopping list and a plan. My final point is you want to try and own stocks that go down less during a Bear market and you want to own for the long-term, because you believe in the product or story.
While everyone is concerned about what happens with COVID-19 as we head towards Fall and Winter, I am optimistic. Two companies who are working on a vaccine candidate both announced this week they have moved up their Phase III human trails to July. Both companies have very compelling vaccine technology and their vaccine candidates look promising. I have mentioned both in earlier market moment write ups. Bottom line: I think by the end of 2020, there is a reasonable chance we will have at least one vaccine approved which will be, in my opinion, a game changer.
Enjoy your weekend and leave the market worry to me.
I plan to produce these Market Moment notes from my office in my basement every week on Friday.
Please let us know if you find them helpful.
Stay safe and keep your family close during these difficult times.
More next week.
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