I understand the mainstream media’s responsibility to not incite panic if no reason for it exists. But the problem with this ethos is that regular folks are not heeding pleas for calm. Case in point is the steep volatility in the markets. This week capped the worst for Wall Street since the 2008 financial crisis. However, a better read into investment sentiment could be credit card giant Mastercard (MA).
Shares of MA tumbled throughout the week, although it did have a positive session on Friday, gaining 1.6%. That’s a small consolation for the folks who witnessed a severe deterioration in their portfolio. Similar to other blue-chip mainstays, Mastercard typically doesn’t react sharply to the headlines. That’s one of the key reasons why value investors anchor their portfolio with MA.
As I reported for InvestorPlace, though, Mastercard stock suffered one of its worst five-day performances in the equity’s trading history. The only three other times where MA suffered steeper declines was during the depth of the Great Recession. In a way, we’re already in a crisis, locked in a strange cocoon of a disingenuous bull market.
Mastercard Is One of the “Real Time” Indicators
What concerns me most is that Mastercard is a bellwether stock. Some investments – like sector-specific retail names – are cyclical. When seasonality or demand cycles justify a premium, they rise. When not, they fall.
However, MA shares belong in the secular category. Whatever consumers are buying, if they’re buying at all, that should pump up the equity valuation. Therefore, when the markets were booming, many analysts looked to Mastercard for a confirming signal. With unemployment at multi-year lows, the bullishness for MA seemed rational.
Obviously, the black swan event of the coronavirus proved otherwise – at least for now. With sentiment turning so negative for shares, I think this is as good a sign as any that the real economy – not the BS numbers that the government pumps out – is nowhere near as healthy as advertised.
Wait This Out
Now it’s true that the best opportunities are found in bear markets. This is an opportunity to buy the blood on the streets. At the same time, you don’t want to be stabbed in the process.
Based on what I’m seeing, I’d wait the panic out. According to the Washington Post, health officials announced a second coronavirus case of unknown origin in California. Since the Golden State is the engine of the U.S. economy, this is not the time to play games.
Plus, over the weekend, I’m sure we’ll see an expansion of the virus across international communities. I highly doubt that Wall Street has priced in the true negativity of this outbreak.