Plus New Zacks Strong Buys for Wednesday, March 11
[Kevin Matras]
Profit from the Pros
By Kevin Matras
Executive Vice President [Zacks Investment Research]
Stocks Up On Oversold Conditions And Hope For Economic Relief
Stocks closed solidly higher yesterday, making up more than half of Monday's decline.
After a strong open, stocks quickly turned around and retested Monday's lows. But once those held, it was off to the races.
Worries over the coronavirus are going to be with us for a while. But it feels like the panic is starting to subside, at least in the U.S. High concern is warranted. And so are precautionary measures to avoid getting it. But this is not the end of the world.
Same goes for the economic impact. Nobody yet knows to what extent. And some industries will be hit much harder than others. But the idea that commerce will grind to a halt and nobody will make any money is just not reality.
Lastly, the oil price war between Russia and Saudi Arabia will eventually come to an end as well. And that will be one less thing weighing on the market.
And those were likely all contributing factors to yesterday's rebound.
The markets also cheered talk of a possible economic stimulus package. The President proposed "very substantial relief" for those hit hardest by the coronavirus. There have also been reports that the administration is considering a payroll tax cut for the rest of the year, among other things.
We will have to see what happens. But the market clearly liked what it heard.
Nonetheless, I think the market has more room to run on the upside regardless if any of these economic initiatives get passed.
The reason is because I believe the recent pullback was only a correction and nothing more.
So far, the correction for the S&P, at its worst, was down by -19.26%. Although now it's 'only' down -14.88%. But -19.26% is getting close to the lower limits (-19.99%) of what a correction is. Anything beyond that (-20% or greater), is technically a bear market.
But I just don't see a bear market developing. For one, bear markets typically coincide with a recession. But with a strong GDP (even with the coronavirus), 50-year low unemployment, 20-year high in household income, near record high consumer confidence, and interest rates near historic lows, I just don't see anything that even remotely suggests a recession.
So I believe stocks have lots of room to rally.
Volatility is here to stay for a while. And we could still see more downside. But for now, there's a good chance the lows are.
And if it truly looks like the worst case scenario will be avoided (health-wise and economic-wise), then stocks should continue to climb higher. And once the worst is behind us, the U.S. economy and stocks are expected to soar as pent-up economic demand in unleashed.
So make sure you're taking full advantage of this correction.
See you tomorrow,
Kevin Matras
Executive Vice President, Zacks Investment Research
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