(This post is meant to be a predictive discussion, not investment advice.)
I have some cash that has been sitting on the sidelines for a while now, so - with the current drop - I'll be looking to get it back into the market soon. The market is getting hammered by coronavirus - and there is some justification for this if the Chinese supply chain has been significantly disrupted.
The good news is that Trump is the man to put the economy upright by refocusing on domestic manufacturing and fair trading practices. He also won't burden a pained economy with universal healthcare or ridiculously high minimum wages.
So... where will the market go from here?
As of writing this, we are down another 1,000 points today. Bad news. Yesterday, the average DOW P/E was 20.03. By losing another 1,000 points, that would put the average P/E somewhere around 19.25.
The historic average DOW P/E is around 16, so we are still a little high. But here's the thing - prior to coronavirus, forward 12 months predicted P/E was 18.39. That's because there was a high expectation that earnings were still going to go up.
Earnings are likely to be flat with coronavirus this year - maybe even some shrinkage. That means that at 19.25, we still have some way to get to the average of 16. Buuuuut... bear in mind that an AVERAGE of 16 means that it is sometimes lower than that. So, if the virus is a significant problem, we could see it drop to 15 or lower.
I believe that as long as Trump is presumed to win 2020, the market will want to stay above average due to his pro-growth policies. So, for the sake of argument, this thing could bounce off 16. To get there, the market STILL has to drop another 20.3%. That could be another 5,000 points! Scary as HELL! Splitting the difference and getting back in at around 22,250 should be a safe bet for growth. Probably not this year, but next.
If it appears that a socialist may win the election, though, it's entirely possible that we go towards a 14 P/E. That's a DOW of 18,000. Seriously.
These may seem like shocking numbers, but I lived through Black Monday in 1987. On that SINGLE day, the DOW dropped 22.6%. From our recent highs, that would be like having a 6,600 point down day! And, bear in mind that the market had several down days PRIOR to Black Monday.
At the end of the day, it's about P/E, and I'm still seeing possible downside. We probably have 2-3 weeks of figuring out how back coronavirus will be here in the U.S. During that time, I expect more sideways/down movement. We may get a little bump, but ANY bad news (such as a sizeable U.S. cluster) will have us heading for 20k.
I'm happy to entertain thoughtful analysis. I want this money to work for me and I believe Trump will be the man to make it work the soonest!
If the news out of Israel is true, and they are weeks away from a vaccine and month and a few months from production, it's quite possible that the supply chain disruption and overall impact on the global economy won't be as bad as expected.
If it is confirmed to be true, I'll start putting the 40% that I've taken out of the market back in - I think the panic selling is a good opportunity to buy. I also think that Bernie doesn't have a chance.
I'll be looking especially hard at good dividend companies that have been hammered.
Vaccines take more time then expected with all the trial and stuff. Also, you run the risk of a vaccine like for the flu, where it is only effective against specific strains. I think this year's flu vaccine was only between 40-50% effective.
Here's the BIG question, though: there are reports of reinfection. Think carefully about that. Normally, after getting something like the flu, you are basically immune for a while because of the antibodies. A vaccine works in a similar way - it tricks your body into making antibodies against a virus. But if you can get reinfected, what does that mean? Will a vaccine even be effective at all? Or are there multiple strains out there and your body only trains antibodies for one strain at a time?
Curious and potentially very bad.