April 13, 2020, 1:09 p.m. EDT

Prepare for massive new opportunities in stocks as the response to the coronavirus reshapes the economy

There will be a big shift in the economy, helping the likes of biotechnology and semiconductor stocks

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By Nigam Arora


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Federal Reserve Chairman Jerome Powell on Thursday announced new loan programs and bolstered existing ones to support the economy.

The Federal Reserve on Thursday unveiled an unprecedented $2.3 trillion program to support the economy. New jobless claims, announced on the same day, surged to 6.6 million in the past week.

That said, massive opportunities in the stock market will arise because of a major shift in the post-coronavirus economy. Therefore, investors will want to emphasize stocks and non-broad-based ETFs. Those who don’t will get, literally, “average” gains via index funds and likely suffer ups and downs along the way.

Read: Fed announces new lending plans it says will provide $2.3 trillion in support for economy

Let’s see where those opportunities are. First, a chart.

Chart

Please click here for an annotated chart of the Dow Jones Industrial Average ETF /zigman2/quotes/208954582/composite DIA -1.37% , which tracks the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -1.35% .

Note the following:

• This is a monthly chart to give investors a long-term perspective.

• The latest rise in the stock market is due to the Federal Reserve deciding to print $2.3 trillion more in new money.

• Since The Arora Report’s signal to buy stocks aggressively in March 2009, as shown on the chart, the stock market has had a major advance despite the recent drop related to the coronavirus.

• The chart shows that the recent rally in the stock market is about 65% related to a short-squeeze. In a short-squeeze, investors who have sold stocks short feel compelled to buy, leading to an artificial rise in the stock market.

• Investors have said there was no warning of the coronavirus. That’s untrue. On Jan. 22, The Arora Report’s call was that the coronavirus could cause a drop in the market. After finding that investors continued to buy stocks, I wrote on Jan. 30 that arrogance and greed among momentum investors “may prove to be dangerous for investors.” Other than a potential cure, the course of the stock market rally will depend on the behavior of “naked” investors. Please see “‘Naked’ investors — not coronavirus numbers — will determine how much stocks rally.”

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Major shifts in the economy

Take a look at the following in the context of how high the stock market has risen since March 2009:

• The government will become a bigger part of the American economy.

• Americans will have less privacy and fewer rights.

• The poor, the lower-middle class and the rich will do better as government programs will help them. The upper-middle class, such as professionals, will get squeezed with higher taxes.

/zigman2/quotes/208954582/composite
US : U.S.: NYSE Arca
$ 269.06
-3.75 -1.37%
Volume: 2.02M
Sept. 23, 2020 2:36p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
26,918.78
-369.40 -1.35%
Volume: 279.74M
Sept. 23, 2020 2:36p
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