Welp, that escalated quickly… Wall Street prides itself on predicting risks and opportunities quicker than everybody else. Two weeks ago, it predicted doom as markets suffered their worst week since 2008. Then, things got worse:
- COVID 19 shut down the world’s economy: It’s officially a global pandemic and a National Emergency in the US. Some European countries have closed businesses except for food, health, and banks.
- Oil markets crashed: “Anyone can die in a freak, gasoline accident.” -- Saudi Arabia to Russia. The two oil-rich countries fighting about how much oil to pump triggered the biggest 1-day drop in oil prices since the 1991 Persian Gulf War.
Stocks fly together (downward)… When economies and markets get shaken by something as far-reaching as a pandemic, investors tend to hit the “sell” button as indiscriminately as a “down for anything” Tinder user swipes right.
- The winners: Some businesses stand to benefit from extended Work From Home and a growing "sanitize-it-all" trend.
- The losers: Everyone else. Many expect an economic recession has already started (recessions = 6 straight months of economic shrinkage). FYI, the last one in the US ended in June of '09. Shrinking economy ➡️ shrinking profits ➡️ shrinking stock prices.
What goes up, must come down (and vice versa)... Each “bull market” is followed by a “bear market”, and versa vice — it’s like a see-saw with giant duffle bags of money sliding back and forth.
- Bull markets: Once stocks rise 20% overall from the last low, it’s called a “bull market”, which tends to include economic growth and falling unemployment.
- Bear markets: Last week stocks fell past the “bear market” threshold, meaning we’d dropped over 20% since February’s record highs. This tends to bring economic shrinkage and rising unemployment.
- Yo-Yo Mountain: Wealth advisers generally recommend not timing the market's ups/downs because they're hard to predict. Over the past nine decades, stocks overall have risen about 10% per year on average. It's like a long hike up a mountain with a yo-yo going up-and-down, but the mountain's overall slope rises.