“How will the stock market recover from the crash?”
A stock market crash could be understood as a sudden or severe drop in the prices of shares within a very short period usually within a day. A stock market crashes because of some natural disasters or economic disasters, speculations, or because of the investor’s panic Stock market crashes are very scary Investors can prepare for a stock market crash by the diversification of portfolios.
Crashes are unplanned as Niall Ferguson stated.” Before the crash, our world seems almost stationary, deceptive so balanced, at a set point. So that when the crash finally hits – as inevitably it will-everyone seems surprised and our brains keep telling us it’s not time for a crash.”
Here’s a list of market crashes and recoveries –
- The Tulip Craze (1637)
- The Wall Street Crash (1929)
- Black Monday (1987)
- The Dotcom Bubble Burst (Early 2000’s)
- The Global Financial Crisis (2008-2009)
It’s obvious to look back and try to copy what happened in previous bear markets onto what’s happening right now. So, if we talk about the recovery of the stock market just follow like a Jamie Oliver 30-minute meal, we’re not going to find it. Here, presenting some broad Lessons that come out of bear market scenarios.
Figure 1 “Past performance is not a reliable indicator of future returns.”
Figure 2 Basis: bid-bid in local currency terms with income reinvested. Source: FE, as of 1 July June 2022.
The market is falling because of the following reasons –
- The disturbances caused by the war between Ukraine and Russia
- Rising interest rates
- Commodity prices that are too high
- Rise of geopolitical tensions around the globe
- Supply chain problems globally
- Inflation
Bear markets since World War II have taken about 13 months to go from top to bottom, whereas the average time taken in recovering is about 27 months.
Some positivity definitely would reflect the larger picture of a world after COVID. But after the virus it will take time to resolve stunted supply chains, GDP growth is still a worry in the global concerns, an end to the war in Ukraine even though the end of a conflict doesn’t mean pressing the reset button. The international community will assess Russia’s position on the global stage and billions of dollars will be needed by commodity-heavy Ukraine to rebuild.
- If the inflation goes down, the discount rate would be decreased.
- If the government investigates both, the market could give well response initially.
When it comes to rebuilding the confidence of investors though, still the turning point will be when the market decides valuations are exceptionally cheap, given the hindrance the market faces. Problems do not need to be evaporated necessarily; markets need to feel that the risks they present are to be represented in the share prices. As per this, it is a balancing act.
Here are some key factors at play that could affect the timing of a turnaround in the markets –
- Inflation and Fed policy responses to it – Freedman says.” Inflation concerns remain near the top of the list.” Fed Chairman Jerome Powell proclaimed that Inflation reduction is likely to require a sustained duration of economic growth.
- Consumer spending- It is a major factor in economic growth. Haworth says, Asset wealth has declined a little in recent months because of the decline in the stock market, but credit balance remains low with respect to income.
- COVID-19 – The virus that was so disturbing in recent years and it has become a part of our day-to-day life, but still it is not a thing of the past. Move we reopened with people going back to offices and more activities are occurring which contributes to economic growth.
- The Russia-Ukraine war – The war between the Russia & Ukraine is one of the most unpredictable variables in Eastern Europe. It is impacting globally. One of the major consequences of the war is high commodity prices which could affect global economic growth badly.
“Keep in mind that we’re likely to experience market ups and downs regardless, and over time market shave shown an ability to recover”
-Rob Haworth, senior investment strategist.
U.S. Bank Wealth Management
