Amidst COVID-19 Pandemic, Stock Markets Have Bottomed Out (For Now)

It can’t be denied that almost all stock markets around the world have fallen because of the COVID-19 pandemic with indices having seen their worst free-fall since the global financial crisis of 2007-2008.   Looking back… The financial markets have been severely impacted even in the early stages of the outbreak.   As early as February, US stock markets have started to crumble with news that the virus has reached the country triggering massive selling as the government started imposing lockdowns. And as other countries heightened restrictions to contain the spread of the deadly coronavirus, stock markets around the world started losing their values.   The   ( ) has reached a record low closing at 6,688.75 on March 22 while the   ( ) followed suit the next day, March 23, as it closed at 18,591.93. It was also on March 23 when London’s   ( ) reached its lowest value in 2020 closing at 4,993.90. Indices of other countries however started tumbling earlier with Spain’s IBEX 35, Germany’s DAX 30 and Japan’s Nikkei 225 plummeting into their lowest this year at 6,107.20 (March 16), 8,441.71 (March 18) and 16,552.83 (March 19), respectively.
Has the stock market bottomed out?
This is the common question nowadays of most traders while we are still in the middle of a pandemic.   But one thing is certain: There’s no other way but up. In fact, some markets are already improving and the recovery has been spectacular.   Our financial experts have made a table of global stock markets and how they performed a during the early stages of the pandemic, their current value and how it compares to their value a year ago.   Below is the chart that we’ve created based on their closing values:
COVID-19 global stock market performance

COVID-19 global stock market performance

  As you can see the historical data that we have collated from Yahoo Finance, majority of stock markets have reached their bottom around March 16 to March 23 and if we compare them to their closing value on June 3, it’s clearly obvious that these major indices are already bouncing back.   And here’s the kicker: Most of their current prices remain to be higher as compared their value the same period last year.   The NASDAQ 100 has closed at 9,668.50 which is 38.24% higher than it’s value a year ago. Much better news is that it’s 44.55% higher than it’s lowest value this year. Next… The Dow 30 closed at 26,269.89. That’s 5.84% higher than it’s close a year ago and 41.3% higher than it’s lowest this year!   Look: The stock market used to be tied to the actual US economy but recent data revealed that it’s no longer the case. With over 40 million unemployed, 100,000 fatalities and widespread riots around the country, the Dow is still up.   On the other hand… Some experts are not yet convinced that the worst is over.  

Still in bear market territory

Global stock markets have rebounded from their losses and while this may seem reassuring,  analysts are saying that such recoveries are possibly temporary. Based on a recent survey conducted by Bank of America Global Research for the month of May, 68% of global fund managers see these developments as merely a “bear market rally” rather than a recovery.   In fact… Some still believe that we’re still in a bear market and if we track historical data, it can serve as a guide on how markets could possibly react whenever a global health crisis is happening.
Dow Jones performance comparison during 2007-2009 financial crisis and COVID-19 pandemic

Dow Jones performance comparison during 2007-2009 financial crisis and COVID-19 pandemic


What are bear market rallies?

Bear market rallies are usually short period of sharp stock price gains during a long-term bear market.   Picture this: Market prices will suddenly bounce higher before turning back lower and hitting fresh record lows again.   These short-lived rallies were very common during the World War I and II and the Great Depression. When a bear market rally is happening, it offers nothing more than false hope.   Here’s the thing… A lot of retail investors are lured into selling to counter any further losses and because they see these brief upward trends, they are suddenly pressured to buy due to fear of missing out. This is why during bear market rallies, you need to overcome your emotions, carefully evaluate your investment portfolio and decide on how much you are willing to risk during these market conditions.   Here’s a fact: Every major crash has had bear-market rallies. These are usually large bounces that gives an impression that the worse is over but in reality, the market could reach another bottom due to the fact that there is currently no vaccine available and no known treatment to cure the coronavirus.   Bottom line? As a trader, you shouldn’t alter your strategies immediately because of these sudden market rallies especially during these volatile economic times.

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