Overvalued Stocks, Freefalling U.S. Dollar to Soon Cause Epic Market Crash
The root cause of the significant correction for the world stock market which will soon become an epic crash is not the Coronavirus. See also, my March 6, 2020 article "US Stock Market to decline by another 22% by Easter". The causes of the correction which began on February 20, 2020:
Stock indices in the US, Canada and Germany reaching their all-time highs on February 19, 2020.
The shares of the world's four trillion-dollar valued companies, Apple, Microsoft, Google and Amazon reaching new all-time highs between February 10 and February 19.
US dollar beginning a free fall on February 20, 2020, after reaching a one year high on February 19th.
For the 60 days ended February 19th the rate of appreciation for the shares of the four tech companies was 100% to 400% higher than the S&P 500's.
What accelerated the price appreciation for the shares of Microsoft and Apple was their dividend yields of 1.29% and 1.13% respectively. Additionally, global investors perceived that:
profits from online, digital and software businesses were immune from the Coronavirus
the US would not be negatively impacted since the SARS and Ebola viruses had gained little traction
Investors gorged on tech stocks and the US Dollar from the beginning of 2020 until February 20, 2020. The US Dollar index had increased by almost 4% from the beginning of 2020.
The tech company perception began to unravel after Microsoft and Apple both issued warnings in February about their financial results being negatively impacted by the Coronavirus. Then after the virus started to spread virally and globally, investors began to realize that the US stock market had not been adequately discounted.
The valuations for the five largest market cap members of the S&P 500 reaching levels not seen since the 2000 dotcom bubble, was also a factor. The chart below depicts the price to revenue multiple for the S&P 500 at the end of 2019 being higher than the year 2000.
The chart below depicts that the aggregate market caps of the S&P 500's five largest members including the four trillion-dollar companies and Facebook exceeded 2000's 16%. The red arrows in the chart point to the declines in net income for the S&P 500's five largest cap members as a percentage of total S&P 500 net income from 1998 to 1999 and from 2018 to 2019. The green arrows point to the increases in market caps for the same two periods.
My March 6, 2020, article includes the statistics which support the 100% probability that the world's major stock indices will decline by a minimum of 35% from their February 2020 peaks by sometime in April 2020. This would equate to additional declines of 23% for the S&P 500 and the NASDAQ compared to their March 5, 2020 closes.
My prediction is that the S&P 500's secular bull market which began in March 2009 ended on February 19, 2020. The ninth secular bear since 1802 began on February 20th. Based on the peaks of the last three secular bull markets as compared to the troughs of the of the three most recent secular bears, the S&P 500 could decline by an additional 47% to 80% from its March 6, 2020 close.
The video of my "Secular Bulls & Bears: Each requires different investing strategies" workshop at the February 2020 Orlando Money Show is highly recommended. The educational video explains secular bulls and bears and includes strategies to protect assets during secular bear markets and recessions, etc.
A strategy to liquidate all mutual fund holdings and the majority of all stock holdings should be deployed immediately. Time is of the essence. To understand why diversification does not work and why penny and low-priced stocks should be held watch Money Show workshop video.
To maximize the liquidation amounts a registered investment advisor (RIA) who has been vetted by BullsNBears.com should be utilized. The advisor must have the expertise to technically trade the market so that higher liquidation prices can be obtained. Since any referred RIA will be able to utilize the Bull & Bear Tracker's signals to manage a portion of a portfolio, losses could quickly be recouped. Its because the Bull & Bear Tracker produces significant profits in declining and in volatile markets. Read this "Big story is not "Bull & Bear Tracker's 5% gain vs S&P 500 loss" for January 2020" article.
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Click here to watch the 2:50 video that provides details on my track records for predicting bankruptcies, market crashes and rallies at crash-bottoms.