The global economy is currently experiencing a severe recession as countries seek to contain the new coronavirus. But will next year see the start of one of the strongest races ever for the global economy?
The iconic Eiffel Tower in Paris saw few tourists in early 2020 and remains closed to this day, while the Leaning Tower of Pisa in Italy lacked people posing in front of it as they generally do! The world is once again waiting for a COVID-19-free environment and is anxious to break free from the barriers currently imposed.
In addition to wreaking havoc on health and social life, the new coronavirus, or the invisible enemy of this new decade, as some might judge, has caused serious consequences for business and commerce. While manufacturing stopped due to home orders, quarantines dominated international trade. As a result, stock markets around the world have experienced bearish sentiment and sales at record levels, recalling the nervousness that prevailed not so long ago during the Great Financial Crisis (GFC).
Position on the stock market 2020 – GFC version 2?
Terrible economic data, falling oil prices and dismal corporate results were the consequences of the rapid spread of COVID-19 on all continents. The coronavirus epidemic has wreaked havoc on global financial markets so deeply that some people compare its impact to the 2008 recession.
The 2008 recession (a direct result of the global financial crisis) was triggered by the collapse of the US subprime mortgage market, which gradually became a contagion that spread to banks around the world and has resulted in a global economic slowdown. In 2020, history seems to have been repeated with the equity markets facing a shock from the system, but this time contagion is a virus which has no cure to date.
With regard to the stock market position during the two years examined, the S&P 500 index fell by ~ 37% in 2008. During the cumulative period up to May 8, 2020, the S&P 500 fell by 9.32 %, leading investors to plan for more serious situations than a recession.
As deciphered, the stock market reacted to the impacts of the new coronavirus disease with worrying volatility, due to investors who sold out of fear.
COVID-19 silver linings
As they rightly say, change is the only constant. The sinusoidal trend in world market charts has not been favorable to the red zone exclusively in the middle of the pandemic environment. Thanks to government-led economic aid plans, stimulus packages, vaccines in preclinical and clinical trials and compliance with the lock-in situation if necessary, markets have shown signs of recovery, albeit at modest levels.
Let’s take a look at the silver coatings that propelled the main stock market indices to recover after the 30% + fall in late March 2020:
Spending and liquidity trends
Taking the example of the United States, money sent into the economy, the purchase of bonds and other instruments helped to compensate for some of the missing funds flowing through the economy and stabilized the financial system.
The Fed’s economic stimulus packages created a large share of investor confidence in stocks and ended up buying money market instruments, government bonds and mortgage bonds, with the intention of providing cash and keep rates low.
The Darlings of the market continued their momentum
Large companies are expected to be healthy enough to survive and possibly thrive if volatile. Big companies really shone this year. For example, FAANG stocks attracted a lot of attention during the period because of their savior offers in the midst of market turmoil.
Low interest rates and valuation
Lower prevailing interest rates, more investors are willing to pay. COVID-19 urged central banks to keep interest rates artificially low on a relative and absolute basis in order to maintain a financing environment that promotes recovery and economic growth for individuals and businesses. What is interesting is the market consensus that these rates, which help make other stock market valuations, should stay low for the foreseeable future.
Government Moves – Stimulus Packages and Home Orders
The stimulus packages injected into all economies have not only helped businesses, banks, lenders and traders, but have also given investors the confidence that money may be back in the market once companies will use stimulus packages to get back to work. Indirectly, the stock market has also benefited from residence orders and quarantine measures which are said to be the biggest contributor to curbing the spread of coronavirus and regulating the work of companies.
GOOD TO READ – Is the stimulus package really beneficial or is it simply delaying the inevitable?
Will the A 2021 market explode?
The hottest question of the moment does not yet have a definitive answer. However, optimism is what is happening amidst the market players behind the silver coatings (discussed above) who have slowly started to dominate the stock market.
The market seems to anticipate a recovery, as it is already considering 2021, with some experts believing that the rebound has the potential to be faster than it would be in other recession scenarios. It is likely that this will be largely catalyzed by the relaunch of monetary and fiscal stimulus in economies around the world that can propel the global economy and stocks to return.
Perhaps the government’s approach and reforms to improve productivity can stem financial losses rather than continue to depend excessively on central banks, which in turn will help economies recover.
Fears of a recession are also exaggerated despite the latest massive sales, as global markets have had a history of rebounding in the long term. Indeed, the dramatic market volatility of the COVID-19 phase presents an excellent opportunity for stock selection outside large companies, with valuations becoming cheaper.
As the coronavirus continues to boil markets and undermine economic growth, panic is likely. But history repeats itself and, in this context, it proves that the market recovery comes in time with the necessary support. This is not the time to give up, rather to speculate, gauge and wait for everything that awaits us.
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