Stay Focused on “Safe Money” Strategies Amid Dramatic Sentiment Shifts!

From panic selling to panic buying.

From widespread liquidation to widespread adoration.

From rampant coronavirus fear to emerging coronavirus hope.

That’s the major shift we’ve seen on Wall Street in the past few days — and in the pricing of many markets.

The S&P 500 has surged more than 550 points from its late-March lows. The Dow tacked on more than 5,000 in the same time frame. And earlier this week, even formerly rock-solid U.S. Treasuries began to give back some of their price gains, sending interest rates slightly higher.

How wild are these swings? Well, if you use the traditional “20% move” as your benchmark, you could argue we went from a bull market in February ... to a bear market in March ... back to a bull market in April!

It’s enough to make your head spin. So, what should you do as an INVESTOR amid these moves?

If you already took all the “Safe Money” steps I’ve been recommending since early 2018 — and the additional ones since late January — nothing.

Let me explain: My prognosis for the economy and the markets was already poor before anyone heard of the coronavirus. That’s because we were already clearly in a late-cycle environment.

Asset classes like Treasuries and gold, as well as the relative performance of various sectors, were strongly suggesting a sharp slowdown or recession was coming in 2020. This meant the proper reaction was a defensive shift in your portfolio strategy.

It worked like a charm before the outbreak, dramatically outperforming the S&P 500. And it worked very well after the virus news turned grim, with big gains on Treasuries and gold, no losses on cash and smaller hits on more-conservative stocks with dividend support.

Now, the narrative is shifting.

Wall Street is increasingly buying into the idea that the virus spread is peaking in some locations. Bulls are saying that the enormous amount of economic stimulus will lead to a turbocharged rebound later this year, and that there’s little reason for caution anymore.

But let me tell you something from almost a quarter-century of experience following the markets: These dramatic kinds of shifts aren’t all that uncommon ... in BEAR MARKET environments. The biggest, sharpest, short-term rallies almost always occur when the overall, longer-term trend is down.

We saw it in 2000-2003. We saw it in 2007-2009. And sure enough, we’re seeing it again. Just look at this Dow chart from the Great Financial Crisis ...

You can see how the Federal Reserve shifted tactics and started throwing interest-rate cuts and other stimulus at the markets in mid-2007.

Each of those moves led to sharp, short-term rallies. But each of those rallies also ultimately failed — and the S&P 500 ended up losing 57% of its value before the final market bottom.

If the recent economic downturn was just a side-effect of the coronavirus, things might be different this time around. Maybe the Fed’s QE would work.

But as I’ve said, this recent turbulence isn’t JUST about the virus.

This is the start of a longer-term process of unwinding a multi-year stretch of wild borrowing, lending and investing excesses. Not to mention sorting through the drastic overvaluation of the asset market in an already-slowing economy.

This process was already getting underway, but the outbreak has dramatically accelerated it in the short term. Even if a bigger relief rally does hit, I don’t think the underlying trends can be postponed indefinitely.

Like I said, my “Safe Money” investment strategies are the best way to prepare and even profit in this tumultuous time.

If you aren’t already on board, this is a great chance to use the rally to lighten up on equity exposure, shift to more point-in-cycle appropriate investments and otherwise get ready for the next leg of the unwinding process. Just click here to join my Safe Money Report service to get specific recommendations on how to start.

Until next time,

Mike Larson