The stock market has crashed more than 30% in March 2020. That was the biggest fall in a single month till now. But surprisingly, the stock market is recovering in April 2020. Within just a month of the biggest crash. So what do you think, the stock market crash of 2020 is over? Or there will be more blood on the street.
Let’s check the possibilities of stock market direction. In the month of April 2020, the stock market has renounced to 20% from its bottom in March 2020.
So what does that mean? is the stock market crash of 2020 is over? Thing will come back to normal?
Usually, the stock market and economy go hand in hand. They have a positive correlation. The investor will invest in the stock market based on the future growth prospect.
So to understand the direction of the stock market, we need to understand the direction of the economy. Currently, the economy is shut down and going through major economic challenges.
Almost every state in India is under lockdown and the Coronavirus is still spreading quickly in the country. Small companies are going bankrupt and businesses are going through a tough times.
Even if the lockdown will be lifted after 14th April 2020, there will still be a big challenge of driving businesses at least for the next six months. Companies will have to come with different discount offers to lure the customers for buying their stuff.
So even if the things will fall in place after 14th April, there will still be a challenge. The profit margins will be reduced as companies have to offer more discounts to drive sales.
Is the Stock Market Crash of 2020 over?
Any rational person at this time would say that it make no sense that the stock market will go up. While the economy is going down, more and more businesses are shutting down, people are losing jobs, so on what basis the stock market can go up?
The problem is you are assuming that the stock market is rational. Ya, it is rational but over a long period.
But in the short run, the stock market is emotional.
Right now you can see the stock market is moving up while the economy is down. Well, there are reasons behind it, it could be:
- The stock market is oversold and now the price is correcting to its actual value.
- The investors are realizing that this could be a great buying opportunity and so they are buying.
- The investors see the recovery in the near future and so they are buying.
Well, let’s talk about reality. Any economic slowdown due to any reason will last for at least 18 months. This 2020 recession has started in March 2020. So how can we have a recovery within a month?
So there are chances that the stock market will crash even deeper than the March 2020 levels. Well, that depends on many factors like the Coronavirus pandemic issue. Economic reform packages declared by the government.
We have just entered the first quarter of the financial year 20-21. And now companies will declare their financial results for the Q4 of 2019-20. The result will surely have an impact on the Coronavirus lockdown. though it started impacting in the last week of March in India.
The bigger economical challenges will start from April onwards. When there is no business, no transactions, no sell. But on the other side, there are fixed costs, employee salaries, rent and so on.
This will surely have an impact on the businesses in the coming quarters. Though the government has announced many relief packages that also will take time to compensate against the loss due to this lockdown.
There is a certain day to day consumption-related companies that will make money even during the lockdown. For example, the stock price of DMart will zoom due to the unexpected buying from the users due to lockdown.
These companies will be benefited even during such situation.
But in the emotional world, it may not work like that. In the year 2018, there are many companies where the results were not good but still, the price of that stocks were moving up.
This was due to that company might have some bad month(seasonal) or there is really something good coming up in the near future.
There are many people who took emotional decision and buy the stock thinking everything will go up.
While there are some people who were waited for the stock market to go even further down. So that they could buy at the bottom. And on the other hand, they are the people who could not sell the stock when they are at their peak.
So the key question is whether the stock market crash is over or there is still a chance of going even deeper.
So the thing is nobody in this world can say that the stock market will go further down or may recover to the new heights.
What should you do in such situation? is this the great buying opportunity? or should I wait for some time to do bottom fishing?
No one shoe fits all. Well, to answer the above questions, I have posted a detailed article on How to invest in such a situation? You may go and check the detailed article about what to do in this situation.