John Templeton said that market bottoms occur “at the moment of maximum pessimism”. Pessimism is high this week with the market more than 34 percent off its February top. Like 1987 and 2008-09, holding a diversified portfolio didn’t help because everything with the exception of Treasuries fell. Diversification is overrated.

I can understand the selling of hotels, airlines, cruise ships, retailers, and restaurants. But utilities fell 37 percent and pharmaceuticals dropped 30 percent. If someone told me a virus would trigger a bear market I would have thought those would be the better-performing sectors. 

Some of the market's swings can be traced not to economic developments or fundamentals, but to algorithm-based trading programs that trigger sudden and large swings. Not by individual investors, but by hedge funds and high-frequency traders. Their algorithms trigger sells when volatility rises so it becomes a self-fulfilling prophecy. After the 1987 crash regulators examined “program trading.” Now they should investigate high-frequency trading. By placing a nominal tax on stock sales the crazy 2000-point swings might be eliminated.

Most of the volatility, though, comes from news events. We don't know when COVID-19 cases will peak, level off and begin to decline. We've seen how that worked in China and South Korea. Investors will be far ahead of events, as they always are, and stocks will begin to rally at the first sign of a leveling off. Defensive stocks are attractive now. 

One of my favorites is Verizon (VZ). Verizon’s 4.8 percent yield surely makes it attractive in this low-interest-rate environment. Public quarantines should have little effect on this company. I also like healthcare stocks like Merck (MRK) and Pfizer (PFE). Those that are sick with COVID-19 or the flu are self-medicating with Pfizer and Merck products. And Pfizer announced they are working on a COVID-19 vaccine. 

Add Becton Dickinson (BDX) and Amgen (AMGN) to the list. Clearly, we will all see a greater focus on healthcare for years to come. Investors are finally picking up on that.

The virus epidemic is dominating the news, as it should and will for a while, even pushing aside political coverage (good). The doctors answering questions and giving their perspective are among the very best anywhere. They aren't sugar-coating things, only urging people to be cautious and take common-sense measures. Better to be too cautious than not cautious enough. All would agree. They are focusing on probabilities, not possibilities. Investors should do the same. This will end. Soon, let’s hope.