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What Are You Going to Do About This

Written by Briton Ryle
Posted February 24, 2020

Well, we got us a perfect storm right here.

The global economy was already weak as U.S. corporations cut their supply chain ties to China. We got a vivid picture of what that looks like when PMI manufacturing and service surveys showed a fairly significant decline.

Those surveys came out early this past Friday, and you can see on the chart how stock prices plunged immediately. 

We also got a pretty vivid picture of the difficulty of containing the coronavirus over the weekend. Incubation periods of up to 26 days being reported. We simply don't know how far it has spread, and markets do not like uncertainty. 

Chinese President Xi Jinping said the virus is a Chinese bioweapon that was inadvertently released  "a big test." 

But that's not the only reason that stocks are getting pushed lower today. 

Don't ignore Bernie Sanders' pretty convincing primary win in Nevada. It's not a done deal yet. But Michael Bloomberg's utter fail at the last debate gives Sanders' frontrunner status for the Democratic nomination as we head to Super Tuesday. 

Talk about uncertainty, Sanders' socialist agenda suggests a major u-turn for the U.S. economy. Break up banks + break up tech + Medicare for all + free college = a lot of debt getting heaped on an already inflated government tab. 

"Red Means Run, Son, Numbers Add Up to Nothing" — Neil Young, "Powderfinger"

Investors had all weekend to ponder how all this will affect stock prices. And the verdict is not good, as you can plainly see. We are at the very start of a repricing that could take a while and also take a big chunk out of valuations. The S&P 500 doesn't have any clear support until around 3,000.

And really, to think it will stop there is pretty optimistic...

So what're you gonna do? How will you navigate this squall? 

First off, you gotta make sure you own good stocks. This means each of your investment vehicles simply must have a very able captain at the helm. Great management is usually the key to whether a company rides the storm out or gets rolled by an unforeseen wave. 

In January of this year, I finally pulled the trigger and added Gilead Sciences (NASDAQ: GILD) to the Wealth Advisory portfolio. 

I've been watching this stock for probably three years now. But it was never time to jump. 

However, in the second half of last year, Gilead embarked on a plan to reconfigure its management team. Now, most investors tend to focus more on products, market opportunities, patents, technology — basically what the company is...

Like with biotech, investors want to look at the pipeline and the patent lifespans. And those are definitely important factors. But don't ignore who the company is...

After all, it is the people that make the decisions about what will be in the pipeline and how patent issues will be handled.

Steve Jobs may have been a genius at product development. But could he have led Apple to become a $1.3 trillion company like Tim Cook has? And to think Tim Cook has accomplished this without a single significant new product... amazing.  

And where would Zuckerberg and Facebook be without Sheryl Sandberg? No doubt Zuckerberg gets credit for an idea that has attracted 2 billion customers. But it was Sandberg that turned Facebook into a profit juggernaut.

There's no time like the present to cast a critical eye on your stocks, especially when that present coincides with a thousand point beatdown for the Dow. And it might save your bacon if this is the start of a serious correction — which I think is likely.

What Does Capitulation Look Like?

I'm already seeing tweets and other commentaries that today's drop is an overreaction, that the bull market is more powerful than any virus or politician. The suggestion is basically what today's move is — a crescendo that will relieve the overbought pressure, many will panic sell and thus clear the air for new buyers.   

It doesn't seem like a good idea to be so casual about this sell-off. There are some tremendous imbalances in the market and the economy. The S&P 500 hit a new record high at 3,393 on Thursday. Do we really think a big drop today down to 3,200 is capitulation? Umm... yeah...

I was around for the Internet bubble and collapse and the ensuing 9/11 bear market. I survived the financial crisis, too. 

I know that a lot of new investors (millennials) have entered the marker somewhat recently. If you're reading this, let me tell you: Brother, this ain't capitulation.

A true bear market is a vicious grind. Do you ever see a movie where kidnappers deliberately let a captive escape and then catch them again, in order to demoralize them? That's a bear market. Just when you start to hope, you get another beatdown.

Eventually, you just give up. You don't even check the ticker anymore. You just want the pain to stop. That's capitulation. We're nowhere near that. 

But in the meantime, pay attention to the stocks that show relative strength. I follow about 30 stocks. Four are in the green. One is the aforementioned Gilead. The others are Peloton (NASDAQ: PTON) Chewy (NASDAQ: CHWY) and First Solar (NASDAQ: FSLR)

First Solar will benefit if China maintains its solar subsidies. The answer to the other two is: "Things you can do without leaving your house, Alex." Yep, people are buying coronavirus stocks. That might actually not be a good thing if investors think the virus will be around long enough to help these two out. 

Until next time,

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Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.

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