Monday, October 9 was one of the strangest days I’ve ever seen in the markets. The level of irrationality is unbelievable, but this doesn’t have to be a source of frustration. If anything, it’s a rare opportunity to capitalize on people’s knee-jerk responses.
For starters, Beyond Meat stock fell because McDonald’s unveiled a rival meatless burger. It’s called the McPlant. No, I’m not making this up. Bear in mind that Burger King already came out with the Impossible Whopper, so maybe we shouldn’t be surprised by any of this.
Also on this crazy day, Pfizer announced that its Covid-19 vaccine candidate prevented 90% of infections in a clinical trial. 44,000 patients were involved in this trial, and only 94 of the participants were infected with the coronavirus.
Major online brokerages could barely handle the traffic as amateur traders went absolutely bananas, buying stocks without bothering to do any research or even understanding what they were buying. Some of the more famous brokers’ websites were down, while others experienced delays in getting trading orders executed.
Oddly, these traders piled into what they perceived as “vaccine stocks” without putting much thought into what they were buying. Thus, AMC stock (the movie theater chain) went up 60% while Carnival Cruise Lines stock went up 36%.
The “logic” behind these buying sprees was that an effective coronavirus vaccine would soon be available to the public, so let’s all load up on movie theater and cruise ship stocks. It’s a risky proposition, to say the least. And now it’s even riskier because the prices of those stocks are much higher.
10-Year U.S. Treasury Note Yield Chart. Courtesy: barchart.com
U.S. government bond yields flew, with the 10-year Treasury note jumping 16%. This would have a negative impact on the spot prices of precious metals, but don’t expect it to last. I assure you, the Federal Reserve has no intention of letting bond yields stay above zero for very long.
Of all the major stock-market indexes, the NASDAQ performed the worst. Evidently, the sentiment of the day was that there will be less demand for tech-enabled services because a vaccine is coming soon and that means people will go outside again and conduct business face-to-face.
Some personal protective equipment stocks also declined, basically for the same reason that the NASDAQ underperformed: less demand for the product because apparently a vaccine is coming and everything will be back to normal again in short order.
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You can probably detect a hint of skepticism, and perhaps a touch of sarcasm, in my writing. A successful vaccine will be discovered and released to the public at some point, I agree. Still, it’s going to take a while to get there and investors are displaying more optimism than they probably ought to.
So, where’s the opportunity here? I don’t think it’s in the McPlant – that much I can tell you, though I do see a future for plant-based foods. And it’s definitely not in ultra-risky assets like movie theater and cruise line stocks.
Instead, I would take a good, hard look at precious metals, which got pounded. Gold declined to the $1,860 area, while silver was beaten back to $24:
Silver Price Chart in U.S. Dollars. Courtesy: barchart.com
While everybody else is climbing over each other and knocking out brokers’ websites to buy up cruise lines and movie theaters, informed investors should keep a cool head and focus on tangible, enduring, anti-inflationary assets like gold and silver.
Silver at $24 is a terrific bargain that probably won’t be available for much longer. If you don’t want to wait for delivery of physical silver, you can always buy shares of silver mining stocks. Just make sure that you’re using a broker with a website that’s up and running.
Why did traders dump their gold and silver holdings? Part of the reason is because government bond yields rose and those yields are usually inversely correlated with gold and silver prices. I don’t see this as a long-term concern as the Fed wants and needs for bond yields to stay low, and they’ll make this happen soon enough.
The other contributing factor was that amateur traders dumped their gold and silver holdings in order to raise cash to buy speculative stocks. Just remember that when the amateurs all rush to one side of the boat, you probably want to go to the other side – or better yet, just stay out of that boat altogether.
And that means avoiding crowded trades while concentrating on what’s trading below its true value. Gold and silver fit the bill for sure, and you’re invited to make the most of a wild and unforgettable day.
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