So I wanted to share my thoughts on the overall market outlook and what to do with your money when it comes to stocks, 401k, IRAs, and Mortgages. I know most people reading this have probably never experienced anything remotely close to this before in their lifetime. The information I am going to go over below are just my personal opinions and what I would do.
I'm going to break this portion up into three sections. The first section I will discuss the earlier issues we experienced with COVID-19 in China. The second section will go over how COVID-19 impacts the market over the next 6-12 months. And the third section I will discuss what I call "The Perfect Storm".
Big Business Supply Chain
So to start we need to understand how the original impacts of COVID-19 in China have and will impact our market. Over 75% of US companies had their supply chains disrupted due to China having to shut down during the outbreak. Why does this matter? Well think about some of the big companies that had this happen, Amazon, Google, Microsoft, IBM, Intel. A lot of these companies have already come out and said that they are going to miss their expected earnings during the next quarter. I believe this is already somewhat priced in but I believe the recovery time for these business will be much longer than 1 quarter. You can expect most of these companies to suffer from this for the next 6-9 months at least. So now you have to realize that a lot of large corporations are going to miss their quarterly earnings for up to the next year.
COVID-19 and the United States
We just briefly went over how these businesses supply chains got thrown out of whack and could take up to a year to recover. Now COVID-19 has crept its way into the US and is already presenting some big time operational issues for these same businesses that are already dealing with supply chain problems. As you may have heard over the past couple days a lot of businesses are trying to find ways to allow employees to work remotely or sending people home, schools are shutting down, sporting leagues are getting suspended and this is just the first few thousand cases that have been identified. How does this impact the market? Well, let's think about tech companies, a lot of these companies have yearly computer, phone, smart device, tablet upgrades. How are they going to meet that demand when they had supply chain delays in China and are now experiencing operations slow downs in the US? Point blank – they aren't. Most of these companies are more than likely to announce significant delays in product launches which is going to trigger uncertainty from shareholders which will result in drop in stock prices. This is going to be a prevalent theme for quite a while. This is going to cause fear in investors and continue to see heavier sell volume than buy volume over the next 6-9 months until these companies stabilize again.
The Perfect Storm
Let me breakdown what I am calling the perfect storm and why I think it is going to shake things up further with the market. The first part of this perfect storm is what I covered above which is COVID-19, I already detailed why this is going to impact the market and have a lasting effect over the next 6 months. The second part is the recent Saudi Arabia and Russia oil price wars, the oil and gas sector has taken a huge hit due to this and combined that with COVID-19 and travel bans, you now have a pandemic across the world and a war on oil overseas. The third and final piece of this perfect storm is the upcoming election. The run-up to an election always shakes up the stock market because you have all these shareholders having uncertainty when it comes to the candidates and who is going to be best for businesses and who is projected to win and this causes major ebbs and flows in the market as we get closer to a presidential election. So now lets review, we have uncertainty with COVID-19 and what the current and future impacts will be. We have uncertainty on the oil price war overseas and how that's going to play out, and in about 3-4 months we will have uncertainty within the market around the election. Combining all these factors we will see some continued significant drops over the next 12 month period.
At this point I do believe we will fall into an economic recession based off the above information, we will be in a downtrend for at least the next 6 months and depending on how long it takes the US to recover from COVID-19 we could see the impact for at least 1 year potentially longer.
Ok, So What Do I Do With My Money?
Let's kick things off by discussing your 401k, so I'm sure some of you that are younger may be freaking out a bit and wondering should I sell out of my 401k funds and just keep the account cash? Should I move the funds into bonds? Let me give you this to think on, so lets say you can't withdraw your 401k for at least another 10 years, in my opinion your best bet is to leave your 401k alone, don't touch it. You may think, how does that make any sense? Well for starters the market always bounces back so I wouldn't worry too much about seeing your account balance go down in the short term, always remember that your 401k is a long term play. The other factor is you can view this as an opportunity, I would recommend to continue to put money towards your 401k as it allows you to essentially average yourself down on the shares that you currently have. This presents a great opportunity for you to see a nice increase in the shares you buy now and for the foreseeable future because those shares will eventually become very profitable once the market comes out of the bear market/recession a few years from now. Think about the prices that people were able to buy their 401k shares at back in 2008 and how much of a come up they have seen since. Have that mindset going into this upcoming time.
The next topic I wanted to touch on is something I have gotten a lot of questions on the past few weeks, which is investors and traders asking me What Should I Buy Into? Well right now, I believe the answer is: Nothing! In my opinion COVID-19 news is going to get worse, more cases, more business and educational challenges, more high profile people getting diagnosed. Remember when China first had the outbreak it grew exponentially the first few weeks before leveling off, the same thing is going to happen in the US. Until we start to see it level off a bit, then market is going to see some violent swings to the downside, I don't believe a good buying opportunity will present itself for at least another 10-14 days maybe longer. Once we get past the brunt of it, I believe some of the best longer term plays to invest in will be the Oil and Gas sector. Two of the leaders in this sector are COP and XOM, these stocks pay a nice dividend, are sector leaders and have been around forever. They both have lost roughly 50% of their per share value and are setup well for you to make a healthy return within the next few years. Look back when these stocks took a dive in 2016 and the recovery they have had since. This presents another great opportunity to buy in and hold for some big returns. Just remember, you more than likely will not catch the very bottom on these stocks, I recommend entering with a starter position and gradually scale yourself in to maximize your potential returns.
The last thing I wanted to touch on is your mortgage. A lot of people are inquiring about refinancing their homes right now. This is not a bad idea if you can at least shave 0.75 points off your interest rate. However, I personally believe rates will continue to drop as we go through these trying times, I believe the opportunity will present itself over the next 6 months to get an even lower rate. I also believe we may see additional federal rate cuts to assist homeowners and help with the potential economic recession we will be entering. I would recommend if you really need to refinance to help out your financial situation right now then go ahead and do it if you will save more than 0.75 points by doing so. However, if you are in a more comfortable position currently you may want to hold out a little longer for the potential of snagging an even lower rate and presenting yourself with a better financial opportunity.
That about wraps up my market outlook and my thoughts on how to best handle your money during these times. I believe if you are on the younger side, don't get discouraged about what's happening, look at it as an opportunity to grow your financial wealth and knowledge. We are in weird time where a lot of uncertainty is entering the market and our daily lives. I recommend checking out some stock charts and information from back in the 1980s or 2008 to see what happened and how the market recovered and think about the opportunity you may presented with to capitalize on this and set yourself up well for the future.
Hope you enjoyed this information and found it informative. If you want to chat further about it feel free to provide some comments below or you can find me on Twitter: https://twitter.com/TheBreadMakerr
Also if you want to read this and more about the market you can here: https://breadmakerpro.com/d/125-what-do-i-do-with-my-money-market-outlook