We're in the midst of historic volatility.
Monday, the Dow Jones Industrial Average rallied 1,293 points (5.1%). It was the largest single-day point gain the Dow had ever seen.
Then on Tuesday, the Dow dropped 785 points (2.94%). It was the ninth-largest point drop ever for the Dow.
Yesterday, the DJIA rallied again, climbing nearly 1,200 points (4.6%). Today (Thursday), it was down more than 1,100 points at session lows.
Of course, that volatility followed last week's dismal performance, when the Dow tanked more than 3,500 points (12.4%).
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The reversals have been absolutely dizzying.
So we turned to our team of experts at Money Morning to determine what's next for the markets in the wake of coronavirus fears and the U.S. Federal Reserve lowering rates again.
Here are their stock market predictions, and how you can protect your money during this extremely volatile time...
Our Stock Market Predictions Show More Extreme Volatility
It's impossible to predict exactly what the market will do next. But you can be certain this volatility will continue.
The coronavirus epidemic is what economists refer to as an "exogenous shock." It's an impossible-to-predict event that didn't happen because of economic reasons.
And this exogenous shock came at a time when markets were at all-time highs.
That's one reason Money Morning Founding Editor William Patalon, III, says we can expect more down days in the near future.
"Before the sell-off got rolling, U.S. stocks were expensive on a valuation basis," Patalon said. "The S&P 500 was trading at 18.9 times projected earnings. That was up from 16.2 a year ago and - save for a brief moment in early 2018 - it was the highest forward P/E for the index since May 2002."
"In short, stocks were expensive," he said. "That magnifies risk at any time. But risks are particularly exacerbated when earnings forecasts begin to wobble."
Companies across every industry have also warned about upcoming earnings. Goldman Sachs Group Inc. (NYSE: GS) analysts project corporate profits could drop 13% this year. Previously, they had estimated 7% profit growth.
As Money Morning Capital Wave Strategist Shah Gilani points out, this is a global issue.
"Equity prices are falling because global commerce is being impacted to the point where companies have been shuttered, cities have been quarantined, countries' institutions including schools in Japan are being closed, and consumers are losing confidence in governments' abilities to stem the growing pandemic," Gilani said.
It may be a global problem, but U.S. markets will feel the pain.
"U.S. equities will enter bear market territory, quickly posting more than 20% losses from their February highs, but will be the first to bounce higher as America once again becomes a global haven for capital and investment," Gilani continued.
Earlier this week, the Federal Reserve slashed interest rates 0.5% to try and steady the market and lift the economy. But Gilani says the move won't have the intended outcome the Fed is hoping for.
"Lowering rates, even a 'concerted' lowering of rates by several central banks working together, in the face of already low rates, isn't going to be economically stimulative," he said. "Besides, the flight-to-quality trading that's driven hundreds of billions of dollars into U.S. Treasuries, for example, has already dramatically lowered rates!"
"Central banks lowering rates now is like opening the barn door after the horses have already bolted," he continued.
So how much lower will the market actually go?
"Support at 25,500 is important; if the Dow can't hold there, consolidate, and start to move higher, look out below," Gilani said. "The next support for the Dow is its 52-week lows around 24,680."
But no matter what the market does from one hour to the next, you can be prepared. That's why we created the following "action plan" for investors to weather this volatility.
Not only will this plan preserve your wealth, but it will also give you a chance to profit while others panic.
How to Handle Your Portfolio During Extreme Market Movements
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While buying stocks right now may seem daunting, this is actually a great time to take advantage of volatility.
"Don't panic in the near term, and use the pullbacks to 'Accumulate' good wealth plays you're going to 'go long' with," Patalon said. "I call it the 'Go-Long/Buy-Good' strategy." Patalon has been recommending this strategy to Money Morning readers since we were founded.
"I've fine-tuned it a bit by using the 'Accumulate' approach to maximize its power," he said. "You establish a foundational position in the stocks you like - and then add to those holdings on pullbacks or as you get more cash."
It's a sentiment he shares with Money Morning Chief Investment Strategist Keith Fitz-Gerald.
"Most people don't think this way, but remember how the game is played. You buy low and sell high," Keith says. "So believe it or not, what you want to do is buy in on big down days, knowing full well that volatility cuts both ways."
"That takes nerves of steel, because nobody knows when the markets are going to rebound. But we do know that history is very clear that they will. It's a function of growth, not headlines."
Keith always urges his readers to keep a list of "must have" stocks nearby. During times like this, when the markets take big dips, you can swoop in and get excellent companies at better prices.
If you need stability right now and can't afford to take any losses on stocks, gold is a great choice.
You don't want to put all of your money in precious metals, but a small allocation between 2% and 5% is a good balance to volatile stocks.
At Money Morning, we like the SPDR Gold Trust ETF (NYSE: GLD). It's liquid, reliably tracks the price of gold, and has a low fee structure. You get the benefit of owning gold without the inconvenience.
Another profitable strategy is options trading. In the last week, we've shown readers two options strategies that resulted in gains of 450% and 50%. We've just released another today as well. Click here for more information.
Action to Take: It's impossible to predict this market right now. But investors should be prepared for more down days in the near term. You can take advantage of this volatility three ways. First, you can buy into stocks you'd like to hold for the long term as they're now discounted. Second, you can buy gold to make your portfolio more defensive. Third, you can profit from major swings in either direction with options.
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