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Could the market collapse again?

August 19, 2020
Cat McLean

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Could the market collapse again?

When the S&P 500 collapsed in March, it fell faster than during the GFC. Since then, it’s had an almost unbelievable rally of 35%. Now we’re looking at a V-shaped recovery that’s moving towards new highs. 

When the S&P 500 collapsed in March, it fell faster than during the GFC. Since then, it’s had an almost unbelievable rally of 35%. Now we’re looking at a V-shaped recovery that’s moving towards new highs. 

Yet there’s a discrepancy between the market’s behaviour and that of the wider economy. As COVID-19 cases and unemployment rates soar, GDPs shrink. Meanwhile, the stock market is in a bubble the question is, is this the start of the party or will it come to an abrupt halt? 

It will depend on a few unpredictable factors:

First, there’s COVID-19. There are more than 21 million cases, 760 000 deaths. The US is still the worst hit country with more than 5.4 million cases and 172 000 deaths. As the second wave crashes over many countries, without a vaccine, we could be looking at a stop-start economy that’s pockmarked by lockdowns.

That could see the already dire unemployment crisis worsen. As potentially 40 million Americans have lost their jobs, Australia’s unemployment is at 7.4%, a 20-year high. As unemployment benefits shrink and spending dries up, some investors are wondering if this could push the market off the cliff once again.

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The US GDP already contracted at an annualised rate of 33% in Q2. The country’s stimulus can only last so long and as it racks up hair-raising debts, it could be a matter of time before the US markets start to feel the strain.

As the second round of US-China trade war talks come up, the current diplomatic tensions could make it even more difficult for the two superpowers to set aside their differences and support each other’s economies.

But of all the things that could cause trouble in the markets, the US election is the big one. Trump’s approval rating is down to near-lows of 41% as many Americans disapprove of his response to the pandemic. This could very well result in a Joe Biden presidency. Biden has pledged to reverse Trump’s corporate tax cuts. This would push corporate taxes up from 21% to 28%, causing a mid-single digital hit to share earnings. Some firms, including Goldman Sachs, wonder if the US election could trigger another short-term market correction.

The market is about to hit new highs but whether you’re bullish or bearish, it’s hard to ignore how fragile it is. Of course, it’s better to be safe than sorry. Now could be a compelling time to hedge against the market.

For the last 12 months, we’ve been seeking different investments that allow us to benefit from market volatility, dispersion, Gold and now we are introducing a hedge on SP500. 

The investment opportunity is only going to be open for a very short period of time. Click here to request a PDS or to book into our investor briefing below. 

 

Event Details:
Date: Tuesday 25th August
Time: 11am AEST
Format: 20 minute presentation followed by a Q&A

To register for this session click here.

 

Reach Markets are the advisors assisting with the management of this offer and may receive fees depending on whether an offer is taken up by investors.

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