February 28, 2020
The US stock market has fallen rapidly in response to investors seeking to reduce risk in the face of the uncertainty of the Coronavirus. Bear in mind that as much at 80% or more of trading activity is done by machines, according to JP Morgan.
Computers today read news headlines and literally listen to the financial news for key words. The keywords are assigned positive and negative values and the computers make trades based on the scores that the programmers coded into the algorithm and the trades are done in milliseconds with human discernment to follow later.
The good news is that because the computers “shoot first and ask questions later” we get an opportunity to benefit from the volatility – if we don’t panic.
We see dozens of opportunities surfacing as I write this. For instance, if each stock in the Dow Jones Industrial Average hit its 1 year target, the Dow would be at about 31,500 in March 2021 or 25% higher. The 1 year target reflects what the analyst believe a stock will be at the end of the designated period, in this case, 1 year. The last time we saw this opportunity was Christmas of 2018.
Source: US Asset Management with data from Refinitiv
CNN has a useful tool called the “Fear and Greed” Index. A score near 0 means that investors are fearful and a score near 100 means that investors are being too greedy. This morning, we hit single digits.
The last time we saw single digits on Fear and Greed was at the market bottom at Christmas of 2018. We bought in 2018 and we are looking to buy right now. Opportunity knocking sometimes sounds unsettling.
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