To say the stock markets have been rocky since the start of the coronavirus (COVID-19) would be an understatement. Global stock markets have been devastated as cash-strapped investors attempt to determine just how the coronavirus will affect the economy and how long any recession will last. At the same time, investors understand that we are approaching what could be one of the greatest buying opportunities of all time.
How Has the Coronavirus Affected Stocks?
U.S. President Donald Trump has always pointed to the stock market to show just how well he is leading the country. On February 19, 2020, the S&P 500 hit a new intra-day high of 3,392.52 points; that represented a 50% increase over the January 19, 2017 closing level of 2,263.69; that’s the day before Trump ascended into the Oval Office.
Because of the uncertainty around the coronavirus, stocks have effectively given up all the ground they made since Trump became president. On March 18, the S&P 500 hit an intra-day low of 2,280.52 points. The same day, the Dow Jones Industrial Average fell below 19,732 points. On January 19, 2017, the Dow Jones Industrial Average closed at 19,732.40 points.
The TSX meanwhile has reported even greater losses. Thanks to the coronavirus pandemic, the TSX has, over just a matter of two weeks, erased all gains made since 2012. On Thursday, March 19, the TSX hit an intra-day low of 11,361.34 points. The TSX hasn’t been that low since the middle of 2012.
While the stock markets have experienced big sell-offs before, never has it happened in so short a period of time. But nothing is ever “normal” on the stock market when it comes to dealing with a black swan even like the coronavirus.
Have investors overreacted? Economists are predicting recessions for the U.S., Canada, and global economies as the coronavirus pandemic takes a massive bite out of unprecedented economic supply and demand channels.
How Long Could A Canadian Recession Last?
It’s no longer an issue of whether the Canadian economy will tip into a recession. The Canadian economy was on shaky grounds before the pandemic ground the global economy to a standstill. Over the last few weeks though, the Canadian and global economy has been getting hit with economic crippling news on a daily basis.
Tens of millions of people are in government-ordered isolation after many countries shutdown stores, businesses, and schools. Border closures have also prevented the flow of goods and services that are in short supply. All of which is undercutting consumer and business activities.
In addition to the coronavirus, the Canadian economy is getting hit by plunging oil prices. First, crude oil prices fell due to the coronavirus; oil took an addition hit as a result of the failed OPEC+ agreement on production levels between Russia and Saudi Arabia.
The global economy is grinding to a halt for the first time in history. Demand for oil has tanked, and Saudi Arabia is flooding the market with an extra two million barrels of oil per day. Russia has responded with a 500,000-barrel increase.
The big question is, how long could a recession in Canada last?
There are, for now, three scenarios. The most optimistic one sees the coronavirus peaking in the spring with a quick recovery, and six month recession. The middle path sees the coronavirus lasting until the summer with prolonged economic weakness. The most pessimistic view sees the coronavirus and low oil prices leading to a sharp economic downturn, layoffs, lower business investment, weak consumer confidence, and falling housing prices.
Right now, most economists are expecting a sharp economic rebound and for stocks to turn significantly higher in the back half of 2020.
Has the Coronavirus Created New Buying Opportunities?
Tumbling stock prices and lower interest rates are gutting the retirement savings of many Canadians. In fact, 48% of the Canadian economy is facing headwinds as a result of the coronavirus and ensuing economic crisis. That excludes real estate. Toss that into the mix and roughly 60% of the Canadian economy is being affected.
At the same time, the current state of the stock market has created one of the best opportunities in 50 years. Over the last five decades, there have been four great buying opportunities: 1973 and 1974 (recession), 1982 (recession), 1987 (Black Monday), and 2008 and 2009 (Great Recession). We are currently in the fifth one.
In Canada, you are getting the opportunity to invest at valuations not seen since 2012. In the U.S., stocks are at levels not seen since 2017.
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The coronavirus and oil shock have sent virtually all stocks reeling. Some of those stocks deserve the correction. At the same time, there are a lot of excellent stocks trading at steep discounts. Before stocks rebound though, they will continue to experience extreme volatility. That doesn’t mean investors should run for the exits. The trading professionals at Learn-To-Trade.com can teach investors how to make money when stocks are bullish and bearish.
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