Stocks have recovered 32% and are only down 12% from the Feb all time highs. In the mean time, the economy has been completely shut down for 2 months and a plan to reopen has many health officials shuddering. Should we trust this v-shaped recovery or is this just another bull trap?
Businesses like travel and retail were hit the hardest as social distancing prevented these businesses from opening or functioning anywhere near full capacity. Stores have scrambled to adapt by building ecommerce websites on platforms like Shopify but there are many others that have folded. Airline stocks have plummeted 75% and are hoping to rely on a government bailout. The government did promise to bail them out but they are doing so by printing money. Printing money is never a good thing as it leads to dilution. Look at what happened to Venezuela.
Investors are currently delusional to value the markets like they were in 2019. Right now, all their hopes and dreams are banking on the economy opening back up and returning to the same consumer spending levels as last year. This will not happen though. People will wear masks going out in North America, this is a sign of fear. Less Americans will go out to restaurants, pubs, malls, amusement parks, etc for the next few years or until a vaccine is discovered. Even with a vaccine though, it will take a while to administer to the entire population and in the meantime, businesses will continue to suffer.
I would proceed with caution right now if you are going to invest in the stock market and do your due diligence for the companies you are looking to buy. For the long term investor, its not as critical but I am waiting for a pullback because of my belief that the stock market will eventually reflect the recession we are soon to be in.
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