Yesterday marked the worst day for global markets since the 2008 financial crisis. This is on the back of the collapse in oil prices, down over 30% at one point, as Saudi Arabia notified its clients that it will sell oil at reduced prices from 1 April 2020. This is to protect its market share while demand is low.
This is effectively the second black swan to hit the market after the corona virus outbreak.
The wild moves of February have moved into March and as we approach next week's quarterly closeout of derivative instruments, we should see the wild volatility persist.
Looking at data on the S&P going back to 1952, when the S&P fell more than 5%, the next day it gained on average 4.2%. Below is what we can expect over the next week, month, quarter and six months.
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The global markets are down around 15% from the high in Mid-Feb, it’s too late to panic. Right now, the markets are pricing in temporary recessions around most of the world. It is too early to rush in and buy everything but being tactical in your approach is a good idea.
Take a look at the table of shares below that have moved extensively away from their recent prices and are on standard deviations greater than 2.5.
Bank and Property stocks stand out as ones that have disconnected from reality, they are approaching dividend yields of 10% and 15% respectively.
This isn’t the time to be aggressive, but rather measured in your approach and slowly accumulate. It’s the only way to weather the storm and don’t try and pick the bottom with gearing. There could be further pain in the week ahead.
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