We can’t say the worst is behind us, but Matt McCall is seeing strength today and suggests it’s time to begin wading back into the market
From its March lows, the S&P is up 21% as I write Tuesday morning, with more than 7% of that coming yesterday.
The S&P is now just 20% below its all-time highs set back in February (for context, its most recent low was 34% below the February highs, set in late March).
Now, this doesn’t mean we can conclude that the worst is behind us — or that we won’t revisit those late-March lows. But at least one analyst here at InvestorPlace believes we’re seeing enough strength today to begin wading back into the markets.
Last week, Matt McCall published his most recent issue of Investment Opportunities, making a case for why it’s time to begin taking advantage of this market-opportunity. Regular Digest readers recognize Matt as our resident thematic investor. He finds the massive trends that are reshaping our world, and by extension, our investment markets. He then identifies the specific stocks best positioned to ride those trends higher.
Matt’s the first to say that we may not have seen the ultimate low of this bear, but he still believes that the market is pricing some of tomorrow’s most influential trends at a discount, creating huge opportunities for investors.
So, in this Digest, let’s take a peek into Matt’s issue and see why he’s bullish today.
***The worst Q1 in history
After the worst first quarter ever for the Dow and S&P, we shouldn’t be surprised by all the red in our portfolios. But in comparing this crisis to those from the past, Matt notes some differences — the biggest of which is the volume of “unknowns” accompanying COVID-19. This is hanging over Wall Street. Back to Matt:
… with the coronavirus pandemic, nobody knows for sure when it will end … or at what cost. Will it be weeks or months? Will it set back economies for one quarter or longer? Will people be willing to travel again?
And the biggest questions of all: How many people will get sick and how many will die from the virus?
As I have stated many times in the past, the stock market hates uncertainty more than anything. If we knew the pandemic would last two more months, we could somewhat gauge the damage it would do to the economy. Today, it is a lot of educated guesses — from me included.
Despite these lingering questions, Matt notes that the markets have recovered every time, and this time will be no different.
***One of the best buying opportunities Matt believes we may ever see
Next, Matt looks back over each instance since 1980 in which the Dow pulled back at least 30% from its high.
From Matt:
This is the fourth time the index has dipped at least 30% — in 1987 (32%), 2002 (34%), 2009 (53%), and now the current bear market (38%).
Here’s what I really want you to see: Each time was a great buying opportunity. Stocks rallied to new highs following every bear market. (The 0.00% line represents the highs.) As a matter of fact, every bear market in history has been followed by new highs. And this time will not be any different …
Matt then highlights 1987, which suffered a 32% pullback. As it happened, it was certain to be a frightening event for investors, likely accompanied by many questions about how markets would recover.
But now, look at that same 32% pullback in a broader context. It’s circled below.
Here’s Matt with the takeaway:
As long-term investors, we must remember that bear markets are a part of investing. In the moment, they feel terrible. It seems like stocks will never rally again. But as you can see, that 1987 pullback of 32% was one of the greatest buying opportunities in the last 100 years.
I believe we are in the same situation right now. We have one of the best buying opportunities in over a decade — and maybe that we’ll ever see.
Matt makes it clear he’s not saying we have hit the bottom and that it’s straight up from here. But he does think it’s time to start putting money into stocks.
Pulling back, below is a graphic that helps establish greater context for where Matt believes the markets are in their pullback.
From Matt:
As you can see, there are four phases to the map:
* Phase 1: Stocks take the gut punch and pull back.
* Phase 2: Stimulus is injected into the economy. Stocks begin to build a base and move sideways.
* Phase 3: Stimulus starts to take effect and stocks react — the rally is underway.
* Phase 4: Stocks reach new highs.
The market is currently in between Phases 1 and 2.
***So, what should investors be doing today?
Matt implores investors to not sell. Even though markets may retest their lows, Matt believes many elite stocks won’t fall back to whatever lower levels they previously hit. If there was a time for defensive selling, it has passed us.
Next, he says it’s time to start putting money into stocks.
Matt’s not suggesting throwing money at the market in general. Instead, true to form, he’s focused on tomorrow’s huge trends, and on a particular strategy that minimizes risk.
Back to Matt:
Will the introduction of next-generation wireless technology slow due to the pandemic? No. The rollout of 5G will continue, changing our lives forever …
Will progress in artificial intelligence (AI) slow due to the pandemic? Absolutely not.
Will electric vehicles stop taking market share from traditional gas-powered vehicles? No way.
Will precision medicine and genomics stop making huge strides in curing diseases? Not only is this also a resounding no, but the pandemic may get us to the future of healthcare even faster.
***And the best way to start buying is to tip-toe back into the markets
Matt does not suggest rushing out and investing all of your available cash at once. Similar to the “drip, drip, drip” method suggested by our CEO, Brian Hunt, Matt likes a slower, methodical approach.
One easy and solid strategy to consider is taking the amount you want to put into stocks and dividing it by five or 10. If you have $20,000 earmarked for stocks, you could buy in $4,000 chunks over five different days. You could also buy in $2,000 chunks over 10 dates. And you could do this weekly or even every two weeks.
There is no absolutely perfect way to do this because that would require knowing the exact day the stock market will bottom, or if it already has. The benefit of spreading out your stock purchases is that you keep some cash in the event there is another downdraft. At that point, you could buy at even cheaper prices. And if there isn’t, you will still have plenty of opportunities in the weeks ahead.
***Right now, Matt is putting together a “best of” list
He and his team have been scanning thousands of stocks to build a watchlist of top-tier investments. These are the companies Matt believes are best positioned for the “Roaring 2020s” as he calls this decade. They are stocks in high-growth sectors that will continue to expand and lead the economy in the years to come, even if today’s pandemic lingers longer than anticipated. Click here to learn more.
Matt is just as bullish (in some cases, even more so) on certain, elite small-cap stocks. These are the ones he tracks in his Early Stage Investor service. In fact, Matt has a new small-cap recommendation coming out tomorrow.
History’s perfect track record of recoveries along with ongoing innovation mean the sell-off opened a window of opportunity to buy some of the world’s best small companies at rock bottom prices.
To be a part of Early Stage Investor and see which small-caps Matt likes, click here.
It’s too early to say we’ve bottomed, but it’s not too early to begin positioning ourselves for the recovery that will be coming.
Have a good evening,
Jeff Remsburg
