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Will the stock market explode in 2020 | V-Shaped or U-Shaped Recovery?


Discussion of how the stock market could rebound in 2020. Will it be a V-Shaped or U-Shaped recovery?


Transcript


Hello ladies and gentleman welcome to the Elias Talks money v-log where I talk all things money and motivation. Today I'm going to talk about stock market and whether it will explode in 2020.

Things have economically shutdown almost entirely across the modern world in the month of March. For many of us investors it has left us wondering what this means, and what a potential recovery could look like. Broadly there are two schools of thought.

V-Shaped Recovery

The first is that it will be a v-shaped recovery. The drop we had in March was the fastest 30% drop in the history of the S&P 500 in just 22 trading days. The V-shaped school of thought is that once the data starts to turns as far as new cases and it is clear that the trends are improving the market will start to improve.

In the same way the market started to rapidly decline ahead of official economic data being released, it will start to rapidly rise as the future prognosis begins to improve.

So for example if we look at the curve in China from the time they took strict lockdown measures to the time they were through the issue it took about 6 weeks.


https://www.worldometers.info/coronavirus/


In most other countries implementing strict lock-down measures right now we are about 2 weeks and 4 weeks into things. If we assume similar to China or perhaps even slightly longer to bend the curve somewhere between the next 2-3 weeks under a V-shaped school of thought the market will begin to forward anticipate the recovery and begin to rally strongly in the second half of April as it becomes clear that we are through the worst of it.

Already we can see in China very positive economic data that they are getting back to normal, and their manufacturing index showed expansion in March versus a significant contraction in February. Their rebound was well ahead of economic forecasts.

This isn't just coming from the government that things are coming back there, but also several US corporations. Starbucks based on reports in mid-march had re-opened 90% of their China locations, and by around the same time period Apple had re-opened all if it's Chinese stores.

https://www.ft.com/content/c0eddc35-9bab-44ff-9974-ebfdd8edee6f

U-Shaped Recovery

The challenge is what if our recovery follows a different path than China, and even if things comeback there will be ongoing social distancing measures that will cause the rebound to take longer than expected. Things like Entertainment events, retail, and restaurants will be most impacted by these measures and will be operating well below capacity most likely for some time after the pandemic is under control.

Additionally, even if nothing is enforced by authorities psychologically the situation might damage consumer confidence for a longer period of time than expected, and people might be more hesitant to go out and spend money out of their own choice rather than because everything is closed.

In China weekday traffic have returned to normal, but the weekend traffic is yet to fully recover to the same extent which shows what the potential problem could look like in the rest of the world. If this sort of psychology persists it could also be years before travel and tourism to fully recover. In the case of the 911 attacks it was at least 2 years until air traffic levels returned to normal.

In conclusion, It all comes down to expectations, and even though the market have baked some of this into the numbers already, it is hard to know exactly how much. If social distancing or other mitigation measures drag on, the recovery in the stock market would suffer and would look more u-shaped than v-shaped.

Overall I don't believe the stock market will explode, and go down further the same way it dropped already in March. But this doesn't mean that the market can't break new lows if the recovery takes longer than expected. I just anticipate the drops in the market won't be as sharp as we saw in March and any drop would happen over a longer period of time.

That's all for today. Thanks for watching my video and those are my thoughts on the subject. If you enjoyed my video please like and subscribe to the Elias Talks Money YouTube channel or follow me on the Elias Talks Money Facebook Page. Over and Out.


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