Barron\'s 03.16.2020

(やまだぃちぅ) #1

M2 BARRON’S March 16, 2020


tors go to Wikipedia to learn the definition


of pandemic, it’s a sign things aren’t normal.


All the stress can compress investors’


time horizons. Falling 2020 earnings esti-


mates start to dominate better potential


earnings in the future. The S&P 500 now


trades for less than 13 times 2022 estimated


earnings. Things should be back to normal


by then. It is also what stocks traded for


around the lows of 2002, 2016, and 2018.


That’s the what. The why is the easiest


question to answer. It is the virus—and the


fact that there are no good precedents to


figure out when the crisis will pass or how


many people will be significantly affected.


“I have purposefully stayed out of the


science,” Calvasina says. “I’m interested in


what the market is telling me.” And what


the numbers show her is the market is pric-


ing in a recession. “Last week the market


was trying to hold 2,700,” she notes. That


lines up with other 10% to 20% drops in


the aftermath of the 2008-09 financial cri-


sis. Those were market corrections. They


didn’t imply recession.


The S&P 500 dipped below 2,700 this


week before closing higher on Friday, after


a final-hour rally. The next negative mile-


post Calvasina is watching for is 2,300. If


the market breaks that level, then it is no


longer pricing in just a garden-variety re-


cession. It would signal worse things are on


the horizon.


Even during the depths of Thursday’s


9.5% decline, the index hit only 2,479, well


above her 2,300 barrier. As hard as it is to


believe, the market tells Calvasina that it


won’t be as bad as the financial crisis. The


market doesn’t expect a grinding, year-plus


slowdown accompanied by a 50% drop in


stock prices. (The average peak-to-trough


recessionary drop in U.S. stock prices is


about 30%.)


What to do next? The pros advise against


excessive inaction.


“Hiding in the market’s most conserva-


tive names was a nice idea three weeks ago,


but it isn’t the best idea today,” David Don-


abedian, CIBC U.S. private wealth chief


investment officer, tellsBarron’s. “Just focus


on good business fundamentals”—and don’t


switch to names with the lowest beta or


price/earnings ratio. (Beta measures a


stock’s underlying volatility and correlation


with the market.)


Calvasina agrees and is staying over-


weight in the industrial sector. “It is under-


performed recently, but the sun will rise on


the industrial economy again,” she says—


probably by the middle of 2020, she calcu-


lates. Calvasina also recently upgraded her


rating on the health-care sector, but not


because of the virus. Former Vice President


Joe Biden’s resurgence in the Democratic


presidential contest reduced the “political


risk” within that sector.


“This [volatility] will reverberate for a


number of months,” Smead adds. He has


40 years of market history under his belt.


He recommends shopping, too, but his


shopping list includes his favorite stocks—


which include home builders and banks—


and not hand sanitizer.


Buffett’s Next Move


Warren Buffett has famously said that in-


vestors “should be fearful when others are


greedy and greedy when others are fearful.”


With financial markets in turmoil, the


Berkshire HathawayCEO has the oppor-


tunity to follow his own maxim and make


what could be some lucrative investments,


as he did during the financial crisis.


Berkshire (ticker: BRK. A) had $128 bil-


lion of cash and equivalents on its balance


sheet at the end of 2019, giving Buffett am-


ple wherewithal to make some moves. A


patient Buffett is being vindicated after al-


lowing cash to build on Berkshire’s balance


sheet in the face of investor calls to pay a


dividend or buy back more of its own stock.


Berkshire was inactive in purchasing equi-


ties or entire businesses last year.


There are plenty of things that Buffett


Vital Signs


Friday's Week's Week's
Close Change % Chg.
DJ Industrials 23185.62 -2679.16 -10.36
DJ Transportation 7939.40 -1016.66 -11.35
DJ Utilities 762.60 -139.10 -15.43
DJ 65 Stocks 7519.60 -983.49 -11.57
DJ US Market 665.67 -70.04 -9.52
NYSE Comp. 10851.98 -1500.06 -12.14
NYSE Amer Comp. 1602.25 -547.52 -25.47
S&P 500 2711.02 -261.35 -8.79

S&P MidCap 1546.75 -251.04 -13.96
S&P SmallCap 725.46 -141.74 -16.34
Nasdaq 7874.88 -700.74 -8.17
Value Line (arith.) 4738.95 -876.35 -15.61
Russell 2000 1210.13 -239.09 -16.50
DJ US TSM Float 27288.33 -2987.11 -9.87

Last Week Week Earlier
NYSEAdvances 85 1,479
Declines 2,995 1,570

Unchanged 5 28
New Highs 30 99
New Lows 2,535 809
Av Daily Vol (mil) 8,032.4 6,019.7
Dollar(Finex spot index) 98.38 95.95
T-Bond(CBT nearby futures) 176-210 179-220
Crude Oil(NYM light sweet crude) 31.73 41.28
Inflation KR-CRB(Futures Price Index) 140.84 155.85
Gold(CMX nearby futures) 1515.70 1670.80

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