Investors need to brave ‘ghosts of 2008’ and keep cash ready amid the coronavirus sell-off, top market strategist says
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Rich Steinberg was at his son’s baseball game the Friday before Lehman Brothers filed for bankruptcy in September 2008. The other attending parents “didn’t even know the world was coming to an end”.
Markets are reacting similarly to the coronavirus pandemic, but the latest market threat “is not the same” as that financial crisis, the chief market strategist at The Colony Group told Markets Insider in an interview.
Markets’ spike in volatility came from a number of dormant factors and reignited market panic not seen in more than a decade, the strategist said.
“You’ve had the perfect storm of overvaluation in the market, geopolitical strife, political unease and divisiveness, and then this virus,” Steinberg said. “I call it ‘the ghosts of 2008.’ People still haven’t psychologically gotten over the financial crisis.”
Even if investors are frozen in their tracks, Steinberg recommends they move now if they’re looking to win down the road.
The sell-off gives investors the perfect time to review their portfolios and shore up cash for buying in the near future, he said. Companies with “strong cash flow, strong franchises, good governance” are best positioned for weathering coronavirus risks.
Otherwise, hold on to cash and a “shopping list of stocks” that you’ve been waiting to buy low, Steinberg said.
“If you have dry powder, know what you want to buy, when you want to buy it, and what levels you’d be ready to slowly pull the trigger.”
Prices are already well off their mid-February highs. Stocks have seen exacerbated selling over the past three weeks amid escalating coronavirus risks and a new oil-price war between Saudi Arabia and Russia.
Thursday’s session brought the worst single-day decline since 1987, and despite a modest rebound on Friday, equities remain deep in bear market territory.
Analysts issued fresh downgrades on earnings expectations through the week, pivoting from once-lofty projections to profit shrinkage through 2020.
As daunting as such estimates may be, Steinberg suggests investors ignore individual figures and pay attention to trends within the analyst community.
Earnings expectations are an easier bar to clear now if firms can cut costs and keep profits stable. The goalposts aren’t on the floor anymore, but “broken and not even reassembled”, he added.
Whether the virus’ economic threats drive recession in the near term or fade away in the wake of a miracle virus, the outbreak won’t weigh on global growth forever, Steinberg said.
Investors who stay patient and avoid “cognitive errors” like panic selling will win out once it ends, he added.
“I don’t view this as an existential threat to the world economy over a long period of time,” the strategist said.
“We’re going to be living with this for a while. So we’re going to have to get to either be desensitised or figure out how we can treat data that’s going to be ebbing and flowing.”
This article first appeared on Business Insider Australia, Australia’s most popular business news website. Read the original article. Follow Business Insider on Facebook or Twitter.