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Stocks surged on Monday . . .
With the Dow Jones industrials jumping over 5%.
The 1,294-point increase marked the biggest one-day point gain for the index.
Go here for the $5 biotech company that is creating the coronavirus vaccine.
So, why are stocks surging? Well, there are two potential reasons for the stock surge.
No. 1: Federal Reserve CUT Rates
Last Friday Federal Reserve Chairman Jerome Powell said he’s monitoring the situation. And Powell indicates that the Fed will do whatever was necessary to support the economy (that means cutting interest rates).
On Tuesday morning, the Fed CUT interest rates by one-half point. That news sent stocks extending gains from Monday.
No. 2: Bargain Hunters Show Up at Stock Market
A 14% drop for stocks in a week is unusual. And that type of move can encourage bargain shoppers to show up and start buying stocks.
That’s what we probably saw yesterday. The Fed’s support for the economy (and stock market) encouraged buyers to step up and start buying stocks.
Go here to grab coronavirus biotech shares – before they surge.
So, what’s next for stocks?
Even after yesterday’s huge gains, I wouldn’t expect a V-shaped recovery for the stock market.
There are now 10,000 coronavirus cases OUTSIDE of China. Italy has more thanb 2,000 cases – the largest block of cases in Europe. And there are now 105 confirmed cases in the U.S.
The news flow will continue to show the rapid expansion of coronavirus. And that’s likely to weigh on the market in the coming weeks.
There could be a huge negative economic impact if the virus continues to spread quickly.
It’s clear that coronavirus may derail global growth for two to four quarters. European countries – including Germany and Italy – will certainly enter a recession. And even the U.S. could experience a brief recession by the end of 2020.
That means it’s likely that stocks will re-test their recent lows. And the market could even sink another 20% in the short term.
Fear can drive market prices in the short-term. However, over the long term stock market prices will reflect the underlying earnings and earnings growth of companies.
History suggests that this downturn for the stock market will be short-lived.
This chart from Ritholtz Wealth Management shows “reasons to sell” since 2009.
During the last decade . . .
There have been plenty of reasons to SELL stocks. There have been many short-term panics – when you could have cashed out.
According to the chart, U.S. stocks have surged 431% since 2009.
One year from now the coronavirus will be viewed as a short-term blip.
In the near term, biotechnology stocks are taking off.
That’s because three little-known companies are rushing to create the coronavirus vaccine. And shares in these biotech companies could surge 381%, 1,176% and even over 3,825% in the coming months.
Click here ASAP – before the next big stock surge.
Yours in Wealth & Health,
Ian Wyatt