This week and, I’m guessing over the next two months, investors will be looking for safe haven investments or ways to protect their portfolios. “Protection,” in this case, can mean not taking as big go a hit as the S&P 500. Whether it be in stocks, bonds, cash, gold or fill in the blank. Even in your mattress.
Why, you ask? I’ve always believed that anxiety and fear to be the two main obstacles to making money or rational thinking, especially in a bear market during which most retirement and trading accounts are stuffed with individual stocks (large and small caps). And both emotions — anxiety and fear — were likely heightened this weekend when President Donald Trump on Saturday asked Americans to brace for the toughest two weeks we have seen during the coronavirus pandemic.
“We are coming up onto a time that’s going to be very horrendous, probably a time like we haven’t seen in this country,” Trump said. White House health adviser Dr. Anthony Fauci said that the COVID-19 death toll in the United States could range from 100,000 to 240,000 — if social distancing is maintained. But in an effort to give some glimmer of hope and optimism to Americans, the President said, “We will move heaven and earth to safeguard our great American citizens.”
I have no doubt the President believes this. But that doesn’t mean the stock market will react positively in the interim. What does all of this mean for your investments and your money, particularly as the national shutdown strengthens its hold on the U.S. economy? Friday’s jobs report from the Department of Labor showed that the U.S. lost 701,000 jobs, breaking a decade-long streak of job gains. Economists had been looking for a decline of only 10,000 jobs.
The jobs report confirmed two things that we’ve already known: The U.S. economy was doing exceptionally well, some might say “steamrolling,” before the coronavirus pandemic. It also confirmed our greatest fear: The coronavirus impact has been total devastation to the U.S. economy — like a like a swing of a baseball bat to a piñata. On the news, the Dow declined by more than 360 points, the S&P 500 fell by more than 38 points, while the Nasdaq lost more than 114 points.
But wait: The White House is now telling us we have not yet seen the worst, which makes the investment situation, and our ability to react to information, even more unsettling. Note that the jobs report on Friday arrived on the heels of market having already capped off its worst quarter since 2008. The S&P 500 index closed down 20% for the quarter, while the Dow closed down more than 23% for the quarter. By all accounts, stocks are incredibly cheap.
The other day I mentioned names within the consumer staples sector that have bucked the trend, including Clorox (CLX), which is up 13% year to date, while the S&P 500 is down 23%. The rush to stock up on things like toilet paper and hand sanitizer has also boosted Walmart (WMT). The center of the grocery aisles is also doing well, where names like ConAgra (CAG), Campbell’s Soup (CPB), Kraft Heinz (KHC) and Hormel (HRL) look like safe havens. Given that each of these names pay decent yields, I’m betting they will continue to be safe havens amid continued social distancing mandates.
That said, keep in mind that bear markets can outlast all optimism and not bottom out until there is total capitulation. Will we have to re-test the March lows to bottom? To prepare, I’ve begun to re-examine my cash position. I’m thinking about taking some losses to build cash to be ready to pounce for if/when total capitulation hits. As for safe havens? I’m shopping in center of the grocery aisles, looking for yield and raising cash.