The U.S. economy is, to put it lightly, in deep and vastly uncharted waters.
The New Reality Is Still Largely Unknown
Given that new reality that consists mainly of massive dislocations and uncertainty across every sector of the economy, where can we expect the market to go from here?The truth is, we really don’t know how this is going to end.
Will the markets be fundamentally changed from the pandemic, or have they just been shaken and disrupted for a short while?
Are we looking at the front end of a stock and bond market catastrophe that’s bigger than we ever imagined?
The Dow has shed 11,000 points off its high, giving up all of its gains over the past three years in under three months. As a result, some of the top companies in the world are now at what seem to be bargain prices.
Is the market oversold and ready for a rebound?
Investors, money managers, and CEOs are all wrestling with this same dilemma right now.
But are they really bargains?
Will the economy and the markets rebound quickly once the CCP virus pandemic has washed over us and is gone?
Looking Backward or Forward?
One of the dangers among many in this crisis is assuming that it will work out in a similar fashion to the prior one in 2008.At that time, after several rounds of stimulus from the Federal Reserve, the markets rebounded in 2009. For the next decade, we enjoyed a very active and profitable bull market.
But thinking that the stock market will quickly bounce back the way it did in 2009 is not realistic. At least not in the near term. The scale of this crisis is even larger than the one in 2008, if that can be believed.
Thinking that financial history will repeat itself is an easy mistake. Military thinkers call that “fighting the last war,” where your vision is impaired by experience rather than expanded by it. As a result, you’re looking backward instead of forward, leaving you unprepared for what’s coming.
Looking backward, however, may be preferable, as the view forward isn’t a pretty one. The pandemic has yet to peak, and won’t for several weeks or months. There’s no reason to think the markets will recover before Americans do.
Opportunities Still Exist
But that doesn’t mean that there isn’t an upside in the markets. For traders, volatility can present some terrific trading opportunities to make sizeable profits on large market swings, whether they’re up or down. But those, too, come with elevated risks.For long-term investors, however, who don’t wish to see their capital depleted in the short term, remaining on the sidelines in cash may be their preferred option. And it’s a smart one as well.
Recession? Depression? Or …?
A recession would be the very best and most optimistic of outcomes. But there will likely be no beginning of relief for the markets until a financial bailout plan has been approved and perhaps funded, and the pandemic begins to rapidly diminish.Given the scale of events that are so far beyond the control of any investor, all anyone can do is be as ready as possible to take advantage of whatever opportunities come next.
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