Just last month, the Dow Jones Industrial Average fell by over 1,000 points in a single day for the first time. Then Monday, it was over 2,000 points in a single day. If you're wondering if this is the start of a 2020 stock market crash, you're not alone.
But that's not what is happening here.
Clearly, the spread of COVID-19 is a bad situation for public health. It's also bad for investors in the short term.
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But there is a silver lining under all this. When the dust settles - and it will - there are going to be massive bargains to be had. You're going to get a second shot at buying some of the best companies in the world at prices they were trading for a year ago.
Now, we don't want you rushing out to buy everything just yet. But in time, the market will return to its centuries-old path of rising stock prices.
Where the Stock Market Is Heading Next
First, let's talk about what just happened. On Feb. 12, the Dow closed at an all-time high of 29,551.40. Yes, it was just a few weeks ago, and that is what makes the market's plunge that much scarier. As of Monday's close, it was down 19.3%, what pundits would say was just shy of a bear market of 20% or more.
Many now compare this to the market decline we saw at the end of 2018, when the Dow fell 18.8%. The difference is that the 2018 decline took nearly three months. In 2020, it took three weeks.
But there have been far worse declines in recent memory, including the financial crisis of 2008.
Back in 2008, the financial world was basically on fire. Banks were imploding, mortgages were underwater, and we were in the middle of a major recession.
Now answer this question - do we see anything close to that today? The answer is, "No, it's nothing like that today." Last month, the economy was strong, unemployment at record lows, and interest rates were low.
Basically, before the coronavirus spread and Saudi Arabia and Russia started a price war in the oil market, things were pretty good. And that means companies are still basically sound. Yes, the virus is causing events to be canceled, people to stop traveling, and supply chains to be disrupted, but all these things are exogenous. When they finally subside, there will be a hit to GDP, but it's likely things will return to normal.
Still, market indicators, like the put/call ratio, the VIX, and stocks falling to new 52-week lows, are the same now as they were at the height of the 2008 bear market. You can cut the fear with a butter knife.
That's creating an opportunity for you.
We'll show you how you can protect your money from the next stock market crash, plus how you can turn the recent downturn into profits in just three steps...
Our 3-Step Stock Market Crash Protection Strategy
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Remember, even though a good deal of damage has already been done, it is very hard to time the market to know when a bottom will arrive. Money Morning Chief Investment Strategist Keith Fitz-Gerald has a few steps investors can take right now to protect themselves from further damage. And that includes avoiding selling it all at the very worst time so that you miss the eventual rebound.
Here are the three strategies that can protect your money and make you more right now.
First, don't panic. Markets rise, and markets fall. With the market down this much, a lot of damage has already been done. However, you can protect from further serious damage by making sure you have trailing stops in place. It's OK if you lose another 5%, but another 20% is not good. Adding or tightening your trailing stops means you set a maximum loss you're willing to take before exiting the market.
Second, Keith suggests adding a bit of defensive positions to your portfolio. This can include gold, via the SPDR Gold Trust ETF (NYSEArca: GLD). Just remember that between 2% and 5% is a good balance to volatile stocks.
Then, he suggests that you should prepare a list of stocks you'd like to own but didn't buy at their recently inflated prices. Any time the market makes a big move (like it has this week), you can pounce on these stocks and get in at discounted prices.
A great example of this is Lockheed Martin Corp. (NYSE: LMT).
The stock plummeted 20% from its February highs and is down about 12% on the year. On the surface that looks terrible, but the business case - to Keith's point - remains rock solid:
- Fundamentally strong defense contractor with a $115 billion market cap.
- Yield at 2.7%.
- Payout ratio is a low 41%, meaning it has no problem covering its dividend.
- Five-year dividend growth rate is 10.3%.
- 18 years of dividend increase.
The company has top line growth from $47.25 billion in 2016 to $59.8 billion in 2019, and that's not something that will simply vanish... virus or no virus, no matter who's in the White House, no matter what the Fed does next.
That's a way to turn a market correction into a silver lining.
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