This morning, Wall Street surged into what some analysts optimistically called correction territory after it appeared Congress might manage to pass a coronavirus stimulus package. Although Senate Majority Leader Mitch McConnell said yesterday there would be "no further votes" on the stimulus bill in the Senate, House Speaker Nancy Pelosi said early this morning she was "hopeful an agreement can be reached in the next few hours."
In response, the Dow Jones Industrial Average rose 6.05 percent at the opening bell; the Nasdaq rose 5.06 percent, and the S&P 500 added 5.31 percent . At midday, the S&P 500 was up nearly 8 percent from the start of trading. Further bolstering the rebound, Senate Minority Leader Chuck Schumer and U.S. Treasury Secretary Steven Mnuchin said they believed they could be nearing a deal on the stimulus package after changes were made to the scheduling for direct payments to unemployed workers . The president chimed in via Twitter, stating,
"Congress must approved the deal, without all of the nonsense, today. The longer it takes, the harder it will be to start up our economy. Our workers will be hurt!"
Hedge Funds are Hurrying to Buy These 3 Stocks Before the Rebound
While investor sentiment is climbing and analysts are starting to dare to hope the market could rebound instead of being temporarily shuttered, hedge fund managers are buying in bulk while prices are low.
Bill Ackman of Pershing Square spent $2.5 billion on Berkshire Hathaway (BRKB), Starbucks (SBUX), Hilton Worldwide (HLT), and Lowe's (LOW).
"If you can buy Hilton at $60 when it was trading at $120, it's going to be a bargain," Ackman said. He added he did not increase his position in Chipotle Mexican Grill (CMG) at present but that he believes the burrito chain will benefit from its delivery app as people seek alternatives to home cooking during the lockdown.
Appaloosa Management's David Tepper bought Amazon (AMZN), Alibaba (BABA), Google parent Alphabet (GOOGL), and Micron Technology (MU). Tepper said he would also buy healthcare stocks as well as other tech stocks, but also warned Wall Street could still fall another 10 percent to 15 percent.
Market Optimism is the Popular Line Right Now
Investors should be aware that market optimism is the "politically correct" line to toe at the moment. Even Ackman, known for his controversial statements and analysis, bragged that his fund is "all long, no shorts, you know, betting on the country" right now. This determination to be bullish combined with public pressure on investors to remain positive, thereby "saving" the market from being shut down and the U.S. economy from further damage, could lead Wall Street investors to make emotionally charged decisions at the first sign of a rally.
"We are in a whip-saw market right now, and investors need to be careful," said John Alexander, longtime real estate author and founder of John Alexander Wealth Systems. "After the market gets beaten up for a while, you will see an up day because of good news. Investors tend to think the bottom must have hit, and the market shoots up. Everyone holds the position until closing bell, then bad news overnight or the next day causes the market to open at a loss. Everyone fears they are going to lose all their money and exits, and the cycle repeats."
Alexander, who has been trading since 1993, said whip-saw markets tend to make investors feel like they will be able to "time the market" even if they have never traded before. "Do not think you can time this market," he insisted. "You are playing against people far more experienced...and the whip-saw market will continue until those experienced investors have flushed out all the 'stupid' (inexperienced) money. Only then will the bottom appear."
Alexander recommended buying stocks during this market downturn using fundamental principles only. "Buy undervalued stocks with solid financials and a future, and buy it planning to hold it for at least a year. Do not sell with the next drop. Eat the loss and hold it because if you bought undervalued, it should come back."
It's Going to Get Worse Before It Gets Better