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The stock markets can't stay here!!!

   

Taking the US500 as an example it hit a record high of 3398 before falling 36% to a low of 2177. The US500 now stands around 2863 having made back more than half its losses. Tech heavy indexes like the US100 have made back even more of their losses.

US500

Based on where markets currently are you might say it is only a mild downturn, however we know the Covid19 impact to the global economy has been anything but mild. Current market pricing seems to be ignoring risks and pricing in positive effects from government stimulus and the increased likelihood of earlier than planned lockdown lifting around the world.

The Bullish Case

The fed and US treasury have already said they will do whatever it takes to avoid financial disaster. The bazooka was brought out early and stimulus is flowing to business and individuals. Many governments around the world didn't hesitate and followed suit. If, and it's a big if, the corona virus impact is short lived then many unemployed will return to work by May/June time, the stimulus will lag in it's distribution and will arrive at the same time and households that have conserved funds in a crisis will be awash with liquidity. In this scenario we could easily see new highs in the market that will then draw in more investors and continue the 2008 onwards super cycle.

The Bearish Case

America leads the world with unemployment approaching 25% and the rest of the world not far behind. Levels not seen since the great depression of the 1930's and achieved in a fraction of the time. Demand for oil has collapsed to such an extend people were prepared to pay you to take their oil. If lockdowns are lifted too early and infections increase again this will create a stop start economy that may result in a lot of jobs not coming back at all. Combined with bankruptcies in oil & gas industry the economy will not be able to recover. Governments have already fired the bazooka and their ammunition may run out. If or when it does markets could easily trade down 50% or more.

Disclaimer:

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice. If such information is acted upon by you then this should be solely at your discretion and Valutrades will not be held accountable in any way.

This post was written by Graeme Watkins

CEO Valutrades Limited, Graeme Watkins is an FX and CFD market veteran with more than 10 years experience. Key roles include management, senior systems and controls, sales, project management and operations. Graeme has help significant roles for both brokerages and technology platforms.

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