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Stock market suffers another downturn – Jim Cramer and others weigh in

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Stock markets returned to red to begin the second quarter. 

The stock market fell on Wednesday as coronavirus fears stretched on. The Dow Jones Industrial Average and the S&P 500 were both nearly 4% lower by mid-afternoon.  

Here's what four market experts have to say. 

Focus on 'good franchises' 

Jim Cramer, host of CNBC's "Mad Money," says circumstances will improve and investors should prioritize good franchises.  

"I feel the market is down largely because of what was said last night [by] President Trump and Dr. Fauci. I also think, by the way, that the market may have been marked up pretty badly when we came in on Monday. All in all, I just think the parade of earnings is going to be not that great. They're just crushing the banks off the fact that the banks in Europe — they got rid of their dividends basically. I'm not, I'm not sanguine. But I think this is what happens. We find out that things aren't so good … Recognize that one day, we're going to be a better, stronger nation, and you should be thinking about those stocks on the way down, rather than every day reacting … There's no perfect time to buy. I default a lot to what Peter Lynch said, which is that there's only a couple days a year where you really get your big gains."

Short-term leverage 

Jim Keenan, chief investment officer at BlackRock, says short-term leverage will look higher as earnings are projected to take a hit.  

"Within the last two weeks, the size and magnitude that you've seen the moves, not just with the U.S. but globally speaking, to try to reduce some of the systemic risk in the system has played out. And we've seen some recovery of the assets there. But as you point out, I think over the next three, six, nine months we're going to be dealing with the uncertainty around the virus and the shape of that virus … If we we're to go through a severe economic downturn here, it's one of these odd dynamics that in order to reduce the humanitarian crisis we have to actually shut down economic activity further. So, leverage in the short term is going to look significantly higher as you see this pretty significant earnings hit. I think what you'll see right now, and you started to see this post the U.S. Fed stepping in and the government Cures Act, is you started seeing the markets open back up to try to provide liquidity to companies to try to withstand this volatile period of time or the drawdown in earnings over the course of the next 12 months."

Diversification is key  

Meghan Shue, head of investment strategy at Wilmington Trust, says portfolio diversification is key during a volatile market. 

"Diversification is the biggest point there, because we are in uncharted territory and we can look at historical drawdowns, we can look at historical analogs for different parts of this crisis. But there really is no precedent for it. And when we think about our portfolio, we are taking a nine-to-12-month outlook. We do think stocks will be higher over the next nine to 12 months, but we think there could be some further pain in the meantime. So, what that means is building a portfolio that is diversified, as I said, also has exposure to different types of environment. So, we are still constructive on more growth-oriented type of stocks, but we don't want to be totally out of value because that is probably going to see a nice, very strong bounce when we do get to that bottom."

The long-term play 

Joseph Amato, president of Neuberger Berman Group, says to hone in on long-term strategic allocation. 

"We think that this is far from over. We think the crisis in multiple respects is still unfolding. The health crisis itself is unfolding, we still don't know what the depth of that's going to be and there's a lot of pain to come, unfortunately. We also don't have a sense for the depth and duration of the economic contraction that's going to occur. So, while there was a rally off the lows within the last couple of weeks, we think there's probably likelihood that you're going to retest those lows as the extent of the economic contraction and its impact on earnings is fully digested over the course of the coming months. We emphasize certainly, whether it be an individual client or institution, to stay focused on the long term and not try to get too caught up with the movements, because we're going to see a lot more volatility and it's very easy to get whipsawed. I mean just look at the last two or three weeks. You have days where you've had double-digit declines and double-digit gains, and your head spins if you're trying to chase that market. So, stay focused on your long-term strategic allocation. If you're a 60/40 allocator to equities and your balance has gotten off because of the decline in equity values, you know, increase that allocation over time. But you can take several quarters to do that."




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