Updated: Sep 3, 2020
Source: The Motley Fool
A lot of investors have been wondering when another stock market drop will happen. Whether that’s a week, month, or years from now it will happen. However, many analysts are predicting that another market dip at least is expected in the near future. While we can’t predict to the moment when that could happen, there are some indicators that could tell us another stock market nose dive is coming. By looking at what’s already happened, we can perhaps figure out what to look out for. After all, history repeats itself. Stock market drop: the why Of course, there’s the obvious: COVID-19. Almost as soon as COVID-19 became known globally, it seemed to hit almost every shoreline. As the virus spread, the markets fell. By mid-March, the S&P/TSX Composite was just one of the composite to have fallen nearly 40%. While no one could’ve predicted the virus, many analysts believed a stock market crash was coming. Another factor was the oil and gas sector. The price of oil had been dropping for years, but then it came to a crashing halt, with Russia and Saudi Arabia creating an oil price war with the Organization of Petroleum Exporting Countries (OPEC). Yet on top of all this was a poor economic situation that’s been getting worse since the last financial crisis. Unemployment was up, the U.S. Federal Reserve announced an inverted yield curve, and there has been a large increase in corporate indebtedness. Gross world product rose from 84% a decade ago to 92%, about $72 trillion. As the economic climate worsens, companies can’t repay debts or refinance them, causing the restructuring we’ve seen. The present There seems to now be some rose-coloured glasses in the markets today. The stock market crash is practically in the rear view to many, with a rebound underway for the last few months. But many analysts are warning that investors are falling into the “bear market trap.” Many believe the economic situation has changed when really, it hasn’t. Part of the rebound has been from news that jobs have been added and a vaccine could soon be underway. But there isn’t a vaccine available yet, and hundreds of thousands of jobs don’t replace the millions of people in Canada with less or no work. This is why analysts believe the markets will continue to drop over the summer months of July and August. What next? Oil and gas prices are still weak. The coronavirus is still very much part of our everyday life. Countries are still struggling as debt climbs and businesses weaken. Companies large and small are going to have to make further cuts if there is any hope of survival. This is likely to trigger poor earnings reports, and poor share price performance. So it is more than likely, before the summer is out, we are going to see a significant drop in the markets. How to prepare There are a few things you can do to prepare before the next market downturn. First, sell stocks if you need money in the next year or so – or otherwise move to cash. Make sure you can pay your bills before anything else. Next, make sure your shares are in solid companies that will come out of a crisis well, even if that means a slump for now. And finally, keep some cash on hand to invest in some more good companies should the market drop again. And there are always opportunities Source: Just Service Global
Innovation in health care is changing the world. While facing some significant potential headwinds at the start of the year, many health care stocks have seen a dramatic change in sentiment since, and greater levels of demand
Technology across all industries (including banking) will continue to change the world we live in
The Energy sector is so oversold (with crude as the core driver)
Gold will always be a trusted hedge
Selected alternatives such as hedge funds can have their place in portfolios
Dividends can be even more important in a low interest-rate world. For investors seeking dividend income, the combination of record dividend cuts and historically low interest rates has emphasized the importance of being able to identify those funds or companies that can sustain or quickly restart dividend payments.
As always, if you think its time to review your portfolios talk to your Just Service network adviser.
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