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Coronavirus rocks the foundation of the stock market — what top pros think you should do

·Anchor, Editor-at-Large
·4 min read

Don’t be fooled by the one-day snap-back rally in the markets on Monday — the waters remain very treacherous thanks to the great unknown that is the coronavirus, Wall Street pros tell Yahoo Finance.

The Dow Jones Industrial Average surged more than 760 points in afternoon trading as investors grew hopeful on globally coordinated action — aka interest rate cuts — from central banks. Investors used the rally to nibble at some best in breed companies hammered in last week’s rout, such as Apple, Walmart, Microsoft and P&G. The S&P 500 and Nasdaq Composite each rose nearly 2% by midday Monday.

Even still, it’s going to be hard for many investors to forget about the beatdown they took a week ago as coronavirus fears swept financial markets globally. Over the course of four trading sessions last week, the S&P 500 dropped by more than 10%. That has only occurred 10 other times since 1950, points out SunTrust Chief markets strategist Keith Lerner.

“At a minimum, history tells us even when we do find a market bottom, in the aftermath of a shock period the repair process is typically measured in weeks and months. Thus, investors should be braced for wide price swings in both directions in the days and weeks to follow,” Lerner told Yahoo Finance via email.

Traders work on the floor of the New York Stock Exchange, Monday, March 2, 2020. U.S. stocks are coming off their worst weekly drop since the financial crisis of 2008. (AP Photo/Richard Drew)
Traders work on the floor of the New York Stock Exchange, Monday, March 2, 2020. U.S. stocks are coming off their worst weekly drop since the financial crisis of 2008. (AP Photo/Richard Drew)

Investors are staring down the barrel of two problems, both of which makes backing up the truck on “cheaper” equities potentially dangerous.

For one, interest rate cuts globally will do nothing to solve the coronavirus. We need a vaccine for that. And two, Corporate America’s profit outlook is ugly at best — Wall Street profit forecasts will need to come down aggressively as economic activity globally stalls. That could further pressure stock prices in the weeks and months ahead.

Here is what several top strategists told Yahoo Finance about the markets and potential strategies.

John McClain, Diamond Hill Capital Management portfolio manager:

“No, the market hasn’t bottomed,” McClain said on Yahoo Finance’s The First Trade. “I think earnings estimates need to get slashed and burned here. There is more fear creeping into the market, and certainly the market is very uneasy at the moment.”

McClain thinks investors should focus on defensive areas of the market until the coast is clear.

“I think there is a high probability of that very definition of a bear market of a 20% correction in the S&P 500 just simply because where valuations were to start,” cautioned McClain.

Chris Pollard, Cowen & Company head of market strategy

“We are not completely out of the woods. What is important to keep in mind ... the equity complex last week was very late to discounting what the rest of global risk had been telling us for quite some time whether it was bonds, the dollar or precious metals,” explained Pollard on The First Trade. “I would say to expect some two way action in the markets, and I do think that any near-term bounce is unlikely to hold at least over the coming week or so.”

Pollard’s best advice is to stand pat and remember that this too shall pass.

“If you are worried about the situation getting worse, take a deep breath and know this volatility will be two ways,” says Pollard.

Noah Hamman, AdvisorShares founder and CEO

“I don’t think the market has bottomed. With so much uncertainty ahead and challenges ahead, I would continue to be cautious and defensive,” Hamman said on The First Trade.

Hamman says clients have been nervous and are exploring hedging strategies.

Quincy Krosby, Prudential Financial chief market strategist

Krosby is upbeat on the impact a Federal Reserve rate cut could have on the markets right now.

“What is the Fed going to do even at the margin, psychologically it is helpful,” Krosby said on On the Move. “It will allow companies to roll over their debt at a lower rate. Even that could help tremendously. Maybe they will say they will continue to buy Treasury notes.”

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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