At first glance, it seems that the stock market crash is over. After falling more than 30% in March, the FTSE All-Share jumped in value over the past week. The index is now up about 20% from its trough.
Investors have rushed to buy back in the market in the past seven days. There have been positive signs in Europe that the coronavirus epidemic is under control, which has helped to improve investor sentiment.
However, some analysts believe that the stock market crash is just beginning. The City believes that as the economic effects of the outbreak begin to manifest, the market will decline further.
The question is, who is right? Is the stock market crash just getting started or is it time to make the most of this unique opportunity in a decade?
Predicting the stock market crash
It is almost impossible to predict the direction of the stock market in the long term. Many analysts have tried, but most have always failed. As such, it might make sense to take all of the market forecasts with a pinch of salt this time too.
The stock market crash may have to go further, but there is also a good chance that stocks will stabilize in the coming weeks. We don’t know at this point. Therefore, the best action investors can take is to focus on buying high quality stocks and not trying to time the market.
Buying quality securities will not protect your portfolio from further market declines. But by focusing on quality, you should be able to avoid the worst of the stock market crash while being well positioned for a market recovery.
Research has shown that over the past 120 years, the UK stock market has produced an after-inflation return of around 5% per year for investors. The analysis also shows that investors who miss the best two or three trading days perform significantly worse in the long run.
Unfortunately, it is almost impossible to accurately predict the days when the market will perform better. So staying the course is the only way to enjoy the good days. This means that investors also have to go through bad times.
However, by maintaining high quality stocks and taking a long-term view, it is easy to look beyond short-term market volatility.
Investing is a marathon, not a sprint. It is important to remember this when planning your portfolio for the future.
So, overall, it is not currently possible to know if the stock market crash is over. However, stay with high quality companies and take a long term view. In doing so, investors should see a positive return on their long-term investments. It doesn’t matter what the market will do in the next few weeks and months.
It’s ugly there …
The threat posed by the coronavirus epidemic has frightened global markets, causing share prices to falter.
And with the Covid-19 virus starting to spread beyond China and Italy, it seems very likely that the bull market we have taken advantage of over the past decade could finally end.
In such a context of market anxiety, it is not surprising that many investors start to panic. (After all, no one likes to see their portfolio values drop significantly in such a short time.)
Fortunately, The Motley Fool is here to help, and you don’t have to deal with it alone…
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Rupert Hargreaves does not hold any of the shares mentioned. The Motley Fool UK does not hold any positions in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that taking into account a diverse range of ideas makes us better investors.