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Thursday, September 24, 2020

Is the Stock Market crash inevitable?

The prevailing stock market condition is being regarded as the worst ever due to the pandemic in the history of trading. Of late, there has been a spectacular display by the U.S stock market, however, it is being anticipated that once the stock market “runs out of gas”, it is bound to crash again. 

Running out of gas basically means the economy will no longer be supported by fiscal and monetary policies. We have witnessed a similar situation way back in 2007 when the financial markets faced a crisis and a stock market crash.

Is there any fix to save the stock market crash?

Stock market Experts are of the opinion that crash signals in the stock market can be seen perhaps by the end of the September, when the jobs benefits program in the US expires. 

There is also a lot of uncertainty about the second stimulus package, which Congress is discussing, and perhaps there is some time before a “favorable” outcome will show. 

The uncertainty can be attributed to the deadlock situation, which is currently prevailing between the Republicans and Democrats. 

Stock Rally

Dow Jones Industrial AverageUnless there is another stimulus package, the U.S Stock Market can be compared to a car that has no gasoline. This can be further substantiated because the Dow Jones’s Index did not manifest much progress. This only indicates that as far as investor sentiments are concerned, they cannot trust the bullish trend displayed by the Dow Jones Industrial Average. 

The S&P 500’s index prices, however, has shown some high, offering some solace to the bulls’ confidence. 

What about earnings?

Interestingly, Wall Street stock earnings have surpassed the estimates this earnings season. Most of the companies are also aware of the subtle message that the current pandemic conveys and that is the worst may have been over or perhaps yet to come, nevertheless, the future remains uncertain. 

This uncertainty only indicates that for the United States, there is a long way to recovery, when it comes to the economy, U.S labor force, and of course not to leave behind consumer spending. 

This could be one of the main reasons why there might be a crash in near future. 

Political rifts

The increasing tensions between China and the United States result in “geopolitical” tensions. Neither side is willing to compromise nor does each side have its own justification to offer. If the rift or the tensions continue to rise, it is quite likely that the stock market might crash and if it does, no amount of stimulus package will be able to bail out the stock market. 

Fed’s move has been a savior

Federal ReserveThe Federal Reserve could support the stock market crash by means of its “loose monetary policy”. However, this time around, the Federal Reserve has been buying corporate bonds. This is a step that the Fed has never taken before. 

However, there is only one measure left that can save the stock market and that is aside from keeping rates of interest below zero, it can only buy stocks just in the manner it had done in the case of the U.S corporate bonds. 

Fast facts about the U.S Stock market

Check these out to know about US Stock Market scenario

  • On Friday, Dow dropped 730 points, which translates to 2.8%, and closed above 25,000 at 25, 015. As compared to its high in June of 25,572, it dropped by 9.3% or 2,557 points.
  • S&P 500 dropped 75 points that translate it to 2.4% on Friday. It closed at 3,009. It dropped 223 points since June from 6.9% or 3,232 points. 
  • The best performer has been NASDAQ and it prevented S&P from sliding back further. Although it slid back too by 374 points that translates to 3.7%, it registered a high in June of 10,131.

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