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Autumn Stock Market Crashes / Second wave
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The worry is the longer it goes on the worse it will be.0
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Prism said:
Investors will look at individual companies rather than just the index. Some of those largest companies which are able to move the index as a small group have been doing very well from lockdown and will likely continue to due to changes in peoples behaviour going forward.
You could find similar stories for Amazon (retail, cloud, Prime), Paypal, Apple and others. These companies have pushed the US markets up almost on their own. Some of it is down to sentiment and could reverse, however some of it will be deserved and reflected in increased profits.
The S&P500 index going up means that the weighted average of all the dollars invested in the shares of S&P 500 companies that are in free float, are worth more now than at the start of the year, by some average amount. However, it is not at all the case that all the companies have gone up by that average amount. Actually some are worth more, for somewhat logical reasons (the microsofts and amazons and facebooks and apples and netflixes) and a great many are worth less reflecting the bad news in broader economy. 20-25% of the whole capitalisation of the 500 companies are in 5 companies MSFT, AMZN, AAPL, GOOG, GOOGL, FB, so if they have a good time, the index says it's had a good time. Others with high weightings include resilient businesses such as visa, johnson & johnson, procter & gamble, mastercard, paypal, netflix.
The other 490 companies may not have done anything like as well as those, and a great many will be standing at a lower value than pre-covid. So if there are more lockdowns, it's not like those 490 other companies will be thinking wow we are way overpriced, it was crazy for us to be valued higher than February, we now need to lose half our August value. Because a great many of them are not higher than February. The ones in trouble, like Delta Airlines, are still 50% lower than where they started the year. Banks like Citigroup or JP Morgan Chase are 30-40% lower than 1 Jan. Businesses reflecting the impact of people going out or travelling like Expedia or Marriott or Wynn or Tripadvisor or Yelp etc will only be at 55-70% of their 1 Jan price, because they are going to have a bad year and everyone knows it could get worse before getting better. Some of those companies mentioned are at sub S&P500 market caps, but just generally making the point that you shouldn't infer that the index being at a high value means that companies in the 'wrong' sector are at high prices.
So companies in good sectors are riding high and companies in bad sectors are not. The question is what about the 'middle of the road' sectors. Well, most sectors would be hurt by a longer recession / depression. But the market does know there could be a recession/depression, and most sectors are not at all-time high prices, the index is simply being distorted by a few successful giants.
Will Apple still sell the same amount of smartphones and tech and streaming services in times of higher unemployment and squeezed incomes when the government is not giving handout money? Will Google still sell as many operating systems and adverts when there is less money going around? Maybe not. But it's important to differentiate between 'the index' and 'companies in the index that you or your fund managers could choose to buy', because there could be a serious difference in performance of some companies if the economy is in the toilet and the markets are less bullish, while you won't necessarily see it in a headline index figure.7 -
This financial crisis has little to no correlation with coronavirus. Coronavirus has absolutely no connection to the financial crisis. This crisis was going to happen, Covid or no Covid.
The knee jerk nonsense of shutting down most of the economy is the gorilla in the room. I fear it is near impossible to foresee anything other than a continuing recession with an odds on certainty of a depression.
I suggest a hunkering down defensive approach. Concentrate on clearing debts and mortgages, and investigate safe haven assets..._0 -
At the crash in March, bonds didn't really do better than shares, so how to protect some investments (apart from keeping some cash?)
Bond is a generic term covering all sorts of investment options and risks. Gilts did very well. Corp bonds did not but they are out of favour anyway at the moment. (bar some as always). Gilts and cash are seen as the current risk reducers. Not corp bonds.
Given how high the US markets are currently, not sure they have factored in a second wave...or even the true impact of the first one.And you dont appear to have factored in the fiscal stimulus or their market bias towards industries. UK large cap is banking and oil. Oil suffered enormously and banking will suffer with Japanification. So, its no wonder the UK FTSE100 is still below peak. The tech biased countries have increased as they are the future.
The worry is the longer it goes on the worse it will be.However, a realisation that you just have to get on with your life will also take place.
Markets zig zag all the time and most crashes that occur are unpredictable. Business sectors will vary on how they are dealing with things and most have already suffered the on off costs of putting things in place to allow the continuation of work. Those in bad shape before CV will fall aside as companies always do during a recessionary period. Others will look at costs and become more leaner and stronger. Others will boom during the recession.
I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.5 -
sebtomato said:As a second Covid-19 wave in the Autumn/Winter looks very likely, I guess we can brace ourselves for another stock market crash.
What's the best way to proactively preparing for it?
I understand that the US stock markets have fully recovered from the last crash, and are at all times high (tech bubble?).
However, in the UK and Europe, still about 20% below all times high.
At the crash in March, bonds didn't really do better than shares, so how to protect some investments (apart from keeping some cash?)
For anyone that can't price the future better than the markets (everyone here probably) they should just invest according to their appetite for risk so they don't end up doing anything silly like chopping and changing when markets head South again. I didn't change anything during the last bear market - pointless; blink and you would've missed it anyway. I'm holding a few extra months in cash to cover outgoings because that seems fairly sensible at the moment but other than that it's business as usual.
Most people I guess who have investments will just keep going on autopilot and paying into their pensions monthly and will do just fine.4 -
If you think there will be another lock down then you could always buy more tech, biotech and internet retailers assuming the same happens as last time.2
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EdGasketTheSecond said:Second crash due around the US election in November.If you believe it, then short the market. I think all asset classes will get taken down though gold less so than stocks and will protect you long-term.0
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I consider all options but will keep some gold as that is the place to be.
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EdGasketTheSecond said:I consider all options but will keep some gold as that is the place to be.0
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