When I opened up my phone first thing this morning I was greeted by two very different headlines which perfectly encapsulated the current disparity between the stock market and global reality:
“Dow rallies more than 200 points to close out its best quarter since 1987” read one headline, while the other read, “Dr. Anthony Fauci says new virus in China has traits of 2009 swine flu and 1918 pandemic flu.”
I can’t be certain, but I can safely assume that the absolute worst-case scenario for this planet right now would be another pandemic or even a second-wave of the current one which appears to be underway already. Yet the Dow (NYSEARCA: DIA), S&P 500 (NYSEARCA: VOO), and Nasdaq (NYSEARCA: QQQ) just had their best quarters since 1987, 1998, and 1999 respectively. March lows were countered by extreme growth in industry stalwarts and newbies alike in the form of Zoom (NASDAQ: ZM), Tesla (NASDAQ: TSLA), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX), and many more.
However reality appears to be finally settling in; unemployment is at record highs across the U.S., stimulus packages drying up, and the market had its second losing week in three last week to highlight the level of ongoing uncertainty. Far from seeing this year’s hardships in the rear-view mirror, it’s possible that the worst is yet to come.
Will the market crash again in Q3?
Historically, we get a 10% market drop every two years on average and since 1950, stocks have fallen 20% or more only 11 times, while declines of 30% or more have happened only five times. The first rule of investing is to never try and predict the market, and we’ve not had to plow through a pandemic of this scale since the Spanish Flu. Realistically, we don’t know when the market could crash again.
There are some signs to look out for that could accelerate a market crash though:
A resurgence in COVID-19 cases — which is already being seen across the U.S. — could bring about more business closures. Should this happen to the same scale as back in March then the economy will be unable to handle it. Although President Trump has vowed not to shut down the country again, this can’t stop businesses or states from individually doing so. We have already seen the likes of Apple (NASDAQ: AAPL) re-close their stores in virus hotspots mere weeks after reopening them.
Another worrying outlook will be when we see the true damage of the coronavirus upon Q2’s GDP, which is expected to be a lot worse than initially expected. Many estimates have put GDP decline between 15% to 50%, further highlighting just how uncertain everyone is.
Then there is the fact that Wall Street is losing its ability to estimate as more and more companies pulling fiscal guidance because they just don’t know how bad the damage is going to be. Companies that have done so include industry leaders Nike (NYSE: NKE), Starbucks (NASDAQ: SBUX), FedEx (NYSE: FDX), and many more. We got a glimpse at this disparity through Nike’s shock quarterly loss in Q1, despite online sales soaring 79%. While investors might praise the rise in online sales, actual revenue fell 36%, leaving analysts stumped as to what they can expect going forward. Q3 could be a massive shock for many companies, with worse-than-expected results leading to another panic-driven sell-off.
How to protect your portfolio
1. Get started: No matter how big or small the investment.
2. Think long-term: The buy and hold philosophy will outperform the market in the long-term.
3. Never borrow to buy: Save first, then invest.
4. Diversify: Accumulate a minimum of 12 stocks across 6 different sectors.
5. Buy what you believe: Own part of a business you love.
6. Invest What You Can, When You Can: Get your saving habits right.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in stocks mentioned above. Read our full disclosure policy here.
Editor at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.