From Bill SchmickiBerkshire’s columnist
3:02 p.m. / Friday, March 5, 2021
It’s been a tough week in the markets. Investors were whipped all week and closed again. I expect more of this for investors this month.
However, I don’t expect stocks to fall directly, find a bottom, and then rebound. This downtrend occurs around the same time the markets sold out last year, but I’m not expecting the kind of severe corrections we took back then. Overall, I expect a 10 to 15 percent drop like I mentioned last week. In fact, on Friday morning (March 5, 2021) we saw the S&P 500 index futures contract fall 6.3 percent from above. The withdrawal is long overdue, by the way. Hopefully it will wash away some of the speculation and scum that has risen to dangerous levels in certain stocks.
The low rate hedging we’ve seen over the past three weeks was, in my opinion, an excuse to sell off, but not a reason to fear the future. My proof: We’re about to get another $ 1.9 trillion fiscal stimulus that the Senate may pass this weekend. An even larger government spending program on infrastructure could also be in sight in the coming months.
As I have been saying for a year, the country’s struggle to overcome the coronavirus will be the key element to the future health and well-being of the economy and the stock market. Thanks to the vaccination and the rapid distribution of drugs by the current government, this struggle seems to be feasible in the months ahead.
But investors haven’t been waiting for it. A reopening business has been going on since the beginning of the year. Airlines, cruise lines, hotels and casino stocks, among others, have all risen. That is one area where I would add some money for this retreat.
All of my recommended natural resource games were also booming, led by energy. The bull market in commodities has a number of tailwinds that I believe will boost this sector even further this year, but runaway inflation is not one of them. The current belief by a growing group of Wall Street analysts that “inflation stays here to buy commodities” is too simple.
There’s a huge difference between expecting reflation (in my opinion) and expecting inflation (or worse, hyperinflation). As the world economy reopens, the demand for materials and other raw materials is likely to increase. When you factor in some supply chain issues and other pandemic-related issues, prices are sure to go up significantly in some parts, but that’s just the economics of textbooks. This does not automatically lead to an inflation problem, as so many predict.
It’s been so long since we had real inflation that there are investors who have never seen inflation in their careers. When you include two-thirds of professional investors and traders who have never experienced a rising interest rate environment either, you have what it takes to create a perfect storm of inexperience, incompetence and chaos. I believe that is what we are seeing in today’s financial markets.
The Ides of March is actually on the 15th of this month and I expect this chop festival to continue at least until then, if not longer. The best declines are the ones that are sharp, short, straight down and over before you know it. Unfortunately, I expect another correction. On Friday morning there will be relief rallies like the market gains of 1 percent ahead of the market, followed by sharper down days. This type of action should make us all bite our nails and emotionally exhausted and stressed out if you try to deal with it. The time to take profits is in the past. Hopefully you followed my advice last month and did just that, but it is too early to use these resources.
The good news is, by the end of this month, I expect stocks and the economy to explode in the third and fourth quarters. All we have to do is get through this month.