Even With This Crisis It’s a Market of Stocks


It’s stating the obvious to say that the stock markets have been in a freefall as a result of the coronavirus. However, I think it’s also important to point out that what we have recently experienced in the stock markets more resembles a flash crash than it does a correction. Furthermore, I think it’s also important to point out that what has been happening was and is not financially driven. Instead, what we are experiencing is the result of an unprecedented health crisis that was unpredictable, and the full extent of the potential damage is yet to be fully understood or known.

With that said, a lot of what we are seeing is the result of raw emotion and fear. During times like these, fundamentals don’t matter very much because panic rules the day. On the other hand, in the longer run fundamentals do matter, always have and always will. Therefore, the threat of the virus will eventually wane, and people will inevitably come to their senses. As a result, logic would also dictate that once the fear abates, then reason and logic will once again rule the day.

Moreover, even though this was not a financially instigated market collapse, the virus will surely leave its mark by creating economic damage. Unfortunately, the full extent is not yet known, and therefore, since markets abhor uncertainty, it is difficult to precisely assess when things might turn around. However, I am confident that they inevitably will.

The following earnings and price correlated FAST Graph for the S&P 500 clearly illustrates not only the magnitude of this recent market malaise, but also the velocity with which it occurred. As you can see in the pop up, the approximate damage to the overall market has been in excess of 25% since the end of February:

Based on what I showed above, the overall market has generally experienced significant damage over a very short period. However, as I indicated with the title of this article, it is a market of stocks and not a stock market. Perhaps you could never find better evidence than by examining some of the individual constituents of the S&P 500 itself. In the aggregate, the market has fallen precipitously. On the other hand, there are specific pockets of the market that have performed extremely well.

Consumer nondurables that provides foods and cleaning supplies have been especially resilient. Clorox with its bleach products is one classic example:

Clorox Co (CLX)

Food retailers such as Kroger and even retail giant Walmart are doing exceptionally well, although Walmart remains significantly overvalued while Kroger is currently available at or near fair value.

Wal-Mart Inc. (WMT)