The coronavirus wiped out $1.7 trillion of market value in two days.
With the death toll approaching 3,000, over 81,191 cases officially recorded and an outbreak in Italy now shutting a big part of its economy, top analysts are still warning not to buy the dip, such as Mohamed El-Erian.
“I stress, this is different,” he said. Just because buying market dips has worked in the past does not mean it’s going to work this time, he said, as quoted by CNBC. “I would continue to resist, as hard as it is, to simply buy the dip.”
However, Many Investors are Ignoring that Fear
In fact, many are now buying the excessive fear.
“Looking at performance over the last 30 years, following a drop of more than 6% over two consecutive sessions, 75% of the time the index rallied over the next two weeks, and 88% of the time it rallied over the following month. Outside of the financial crisis, the Dow was higher one month later in every single instance,” as noted by CNBC.
Even billionaire Leon Cooperman just used the sell-off to buy stocks like United Airlines, betting the virus story will die by June 2020. “Look at United Airlines: They came out with their commentary the stock is trading at six times what they expect to earn this year. They took out guidance because they can’t give you guidance until they know what happens with the virus.”
National Economic Council Director Larry Kudlow also just noted the virus-based sell-off has created a buying opportunity for long-term investors. “The markets obviously are reflecting new fears. A lot of volatility out there. I don’t think these are fundamental factors …This thing will run its course,” Kudlow said, as quoted by CNBC.
At the same time, investors should be wary of further virus pullbacks.
Should the virus start to spread in the U.S., we could see further panic-induced pullbacks.
“We increasingly find it hard to believe that USA cases are as low as reported, and believe that given the flow of Chinese, Korean and Iranian nationals into North America, a large USA community-based outbreak is increasingly likely,” say analysts at Jefferies.
Even Dr. Nancy Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases has noted, “We’re not seeing community spread here in the United States, yet, but it’s very possible, even likely, that it may eventually happen. Our goal continues to be slowing the introduction of the virus into the U.S. This buys us more time to prepare communities for more cases and possibly sustained spread.”
While the dip may appear attractive today, it may not tomorrow.
