Investors need to brave 'ghosts of 2008' and keep cash ready amid the coronavirus sell-off, top market strategist says
The economic threat posed by coronavirus is "the perfect storm" of numerous market pressures, Rich Steinberg, chief market strategist at The Colony Group, told Markets Insider in an interview. The turbulent sell-offs and new risk factors seen in recent weeks are reminding investors of "the ghosts of 2008" and fueling irrational investment decisions, he added. Instead of freezing in their tracks, investors should shore up cash and make a "shopping list of stocks" to buy up once they hit desirable prices, the strategist said. The coronavirus isn't an "existential threat," but avoiding "cognitive errors" like panic selling can help one win out in the short-term, Steinberg said. Visit the Business Insider homepage for more stories.
Rich Steinberg was at his son's baseball game the Friday before Lehman Brothers filed for bankruptcy in September 2008. The other attending parents "didn't even know the world was coming to an end." Markets are reacting similarly to the coronavirus pandemic, but the latest market threat "is not the same" as that financial crisis, the chief market strategist at The Colony Group told Markets Insider in an interview. Markets' spike in volatility came from a number of dormant factors and reignited market panic not seen in more than a decade, the strategist said. "You've had the perfect storm of overvaluation in the market, geopolitical strife, political unease and divisiveness, and then this virus," Steinberg said. "I call it 'the ghosts of 2008.' People still haven't psychologically gotten over the financial crisis." Read more: Goldman Sachs studied every bear market in stocks since 1835 — and concluded that 3 red flags make this coronavirus-driven one unlike any other in history Even if investors are frozen in their tracks, Steinberg recommends they move now if they're looking to win down the road. The sell-off gives investors the perfect time to review their portfolios and shore up cash for buying in the near future, he said. Companies with "strong cash flow, strong franchises, good governance" are best positioned for weathering coronavirus risks. Otherwise, hold on to cash and a "shopping list of stocks" that you've been waiting to buy low, Steinberg said. "If you have dry powder, know what you want to buy, when you want to buy it, and what levels you'd be ready to slowly pull the trigger." Prices are already well off their mid-February highs. Stocks have seen exacerbated selling over the past three weeks amid escalating coronavirus risks and a new oil-price war between Saudi Arabia and Russia. Thursday's session brought the worst single-day decline since 1987, and despite a modest rebound on Friday, equities remain deep in bear market territory. Read more: Why Goldman Sachs analysts think Morgan Stanley's stock will be Wall Street's big winner if a full-blown coronavirus recession strikes Analysts issued fresh downgrades on earnings expectations through the week, pivoting from once-lofty projections to profit shrinkage through 2020. As daunting as such estimates may be, Steinberg suggests investors ignore individual figures and pay attention to trends within the analyst community. Earnings expectations are an easier bar to clear now if firms can cut costs and keep profits stable. The goalposts aren't on the floor anymore, but "broken and not even reassembled," he added. Whether the virus' economic threats drive recession in the near term or fade away in the wake of a miracle virus, the outbreak won't weigh on global growth forever, Steinberg said. Investors who stay patient and avoid "cognitive errors" like panic selling will win out once it ends, he added. "I don't view this as an existential threat to the world economy over a long period of time," the strategist said. "We're going to be living with this for a while. So we're going to have to get to either be desensitized or figure out how we can treat data that's going to be ebbing and flowing." Now read more markets coverage from Markets Insider and Business Insider: JPMORGAN: The best case scenario for stocks is a Biden presidency with a Republican Senate Investors stockpiled a record $137 billion of cash in just 5 days as coronavirus fears sent them fleeing from risk CME and Cboe are clearing trading floors as coronavirus spreads, and one veteran trader thinks the millions they'll save will be too good to ever reopen the iconic pitsJoin the conversation about this story » NOW WATCH: A big-money investor in juggernauts like Facebook and Netflix breaks down the '3rd wave' firms that are leading the next round of tech disruption
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