Buckle Up, the Coronavirus Stock Market Sell-Off Is Far From Over

April 1, 2020 9:19 PM UTC
The stock market sell-off is likely to continue in the coming months, as fear of a deep and long global recession are mounting. Investors should move forward with caution.
  • After global stocks posted their worst first quarter since 2008, the market sell-off continues.
  • Fears are growing that the global recession may be particularly deep and long.
  • As the market sell-off looks far from over, investors should be cautious.

The coronavirus continues to spread worldwide. More than 873,000 coronavirus cases have been confirmed globally, including at least 189,633 in the United States.

On Tuesday, global stocks posted their worst quarter since the 2008 financial crisis. The second quarter could be just as bad, if not worse. The market sell-off continued on Wednesday as COVID-19 worsens in the United States. The White House has warned that up to 240,000 Americans could die from the coronavirus pandemic, and the economic shock waves have continued to ripple around the world.

Lawmakers have already approved three rescue packages. But Donald Trump said the U.S. economy might need another $2 trillion stimulus package.

Recession Could Last Longer Than Expected

Lockdown measures to save lives have an economic cost. They are causing a general slowdown in manufacturing in Asia. PMI indices were lower in March than in February for most Asian countries.

Asia’s PMI indices were generally lower in March and moved further into contraction territory. | Source: ING

Asia is facing a second wave of coronavirus infections following a week of declining rates.

The global recession will likely last a long time. As long as human interaction remains dangerous, companies cannot responsibly return to normal.

Charles Dumas, chief economist at TS Lombard, said:

The psychology won’t just bounce back. People have had a real shock. The recovery will be slow, and certain behavior patterns are going to change, if not forever at least for a long while.

The International Monetary Fund said in a blog post that governments should approach the pandemic as if it were a war. They should provide essential supplies to the health care sector, cash transfers to those who have lost their jobs, and “exceptional support” such as wage subsidies to private businesses.

The recovery probably won’t be as sharp and quick as many are hoping. Economists have warned that the global economy could take years to recover to its pre-coronavirus state fully. The collapse could be the worst since the Second World War.

The Coronavirus Market Sell-Off Isn’t Over Yet

The market sell-off looks far from over. DoubleLine Capital CEO Jeffrey Gundlach believes that the coronavirus market sell-off will worsen in April and that the market will reach a more “enduring” bottom after taking out the March low. He thinks projections from banks that the U.S. economy will recover quickly were highly optimistic.

According to Stephen Innes, a strategist at AxiCorp, stock markets are reacting to:

a likely increase in the duration and breadth of coronavirus lockdowns in the US and elsewhere, which is pointing to a potentially deeper and longer-term hit to economic activity than was anticipated even a week ago.

The Dow plunged on Wednesday as the market sell-off continues. | Source: Yahoo Finance

Investors should be cautious during these uncertain times. As stocks have gotten cheaper, they might want to take small positions, but they shouldn’t risk more than they can afford to lose. Using a dollar-cost averaging strategy appears a better approach than buying large amounts of stocks all at once.

The above should not be considered trading advice from CCN.com.

Aaron Weaver edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

Last modified: June 13, 2020 9:40 PM UTC

@SBChateauneuf

Stephanie has been writing about stocks and financial markets for several years. Based in Canada, she has written for The Motley Fool and Seeking Alpha. She received an MBA in finance and worked for National Bank of Canada. Check out more of her experience on LinkedIn + and follow her on Twitter. Reach her at stephanie.chateauneuf (at) gmail.com or visit her profile on Muck Rack here. Stephanie is a Trusted Journalist.