In November 2019, a survey from UBS Wealth Management showed that 55% of 3,400 investors with at least $1 million in investable assets expected a 'significant drop in the markets in 2020.' Fast forward to the end of Q1 of 2020 and the Dow Jones stock market index logged a more than 2,000 point drop in a day - its largest in history - before sinking more than 10,000 points.
The fire sale in world stocks - where $21 trillion has been wiped out - infected other markets as investors shunned bonds, gold and currencies, in favour of cash. Calls for a global recession increased dramatically and a Bank of America survey on global growth expectations saw its biggest drop ever in the bank's 26-year poll history. The question now is will the stock market crash further in 2020 and what are the potential trading opportunities around it? Read on to find out.
Why did the stock market crash?
Investors surveyed in the UBS Wealth Management report at the end of 2019 cited three significant concerns which could lead to a stock market crash in 2020. These were:
- The ongoing US-China trade conflict (44% of investors believed this would affect their portfolios in 2020)
- Their local political environment (41% expected that this would affect their portfolios' performance)
- The 2020 US Presidential election (37% of investors believed this would have an impact)
However, it was the growing fears of the global spread of the coronavirus disease (COVID-19) that shook investors around the globe and caught many individuals off guard. According to the World Health Organization, there are now more than 110,000 confirmed cases which have led to more than 3,800 deaths. Some governments have shut down borders, restaurants, pubs and hotels while advising against non-essential travel - severely affecting the travel and airline industry.
Some economists are now producing some very dire warnings for the world:
- Credit-rating agency S&P Global announced that the world's economy has plunged into a global recession.
- IHS Markit's chief US economist, Joel Prakken, predicts a recession for the world's biggest economy in 2020.
How far will the stock market crash of 2020 go?
The American Association of Individual Investors asked individuals whether they're bullish, bearish or neutral on stocks for the next six months. The results were quite dramatic. According to the survey, there are now 22% more bears than bulls in the stock market.
The situation has led to a wave of investment bank's slashing their price targets for the S&P 500. Barclays saw the S&P 500 ending the year at 3,300 and has now slashed it down to 3,000. In fact, the average end of year price target for the S&P 500 is still quite high at 3,290.
However, investment bank giant Goldman Sachs says there is still further pain yet to come. The firm said the S&P 500 could see a mid-year trough at the 2,000 price level which still represents some significant downside potential, as the long-term price chart of the S&P 500 stock market index shows below:
Source: Admiral Markets MetaTrader 5, SP500, Monthly - Data range: from 1 August 2007 to 19 March 2020, accessed on 19 March 2020 at 8:45 am GMT. Please note: Past performance is not a reliable indicator of future results.
It's likely we could see many investment banks cut their end of year targets as the market panic continues over the next few months. However, even Goldman Sachs is still looking for an end of year target for the S&P 500 of 3,200 which is a significant move higher from the 2,000 mid-year trough forecast.
Even legendary investor Warren Buffett, who famously coined the phrase 'sell when others are greedy and buy when others are fearful', recently reaffirmed his long-term bullishness on stocks in an interview with Yahoo Finance. Of course, Buffett's definition of long-term is very long-term as he holds stocks for a lifetime! But with stock prices cheaper than they were at the beginning of the year and with fear spreading through investors all around the world, is now the time to be greedy?
The clarity in the chaos…
During this market panic, it's clear that there are potential opportunities all around. However, to navigate such markets it's important to have the right tools at your disposal. For example, instruments like the SP500 CFD and DJI30 CFD (Contracts for Difference) allows traders to trade both long and short, thereby potentially profiting from rising and falling markets.
With Admiral Markets UK Ltd you can access a variety of different trading accounts such as Trade.MT5 and Trade.MT4 which offers the ability to trade CFDs on a wide selection of different asset classes such as stocks, indices, currencies and more - all on the world's most popular trading platform MetaTrader 5 and MetaTrader 4. Furthermore, users can also access the Invest.MT5 account to invest in stocks and ETFs from 15 of the largest stock exchanges in the world.
While volatility does create opportunities for traders, though, it's also important to keep in mind that these tend to be times of higher risk, so it's also important to manage your risk carefully. So, how will you be trading this year?
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