Hey everyone!
This is the first time I am writing about the stock market. My goal is to spread information about it and see how other people think about it.
Unfortunately there is no straight-forward answer to this, but there are factors that we can speculate and decide whether it is a good idea to put our money in the US stocks at the moment.
First of all, I would like to clarify that what I write in this post is completely my opinion and not a financial advice.
First, let's look at the chart of SPY, which is designed to track the S&P 500 stock market index, to measure the stock performance of 500 large companies listed on stock exchanges in the United States.
This is a 4 hour chart of the SPY and it shows how the recovery from the recent crash already half the way happened. However this recovery does not mean anything yet, the big question is whether this was the end of it or there is another big crash coming. My opinion is that there is another coming, and here are the reasons why:
1. Bad economy
Most businesses are making way less money (especially small businesses) than they did last year and this affects people. Their earnings were turned off so if people and businesses are making less money then that means that's less money they can put in the stock market as well.
2. No cure for illness
The virus is still here. The numbers of infected has been slowed down yes, but there is no vaccine or cure yet and if the world reopens, we can see these numbers rise again until we have this under control. As this happens we can expect the media to spread the bad news once again, and bad news will affect the market.
3. Unemployment
This is a major concern, because the unemployment rates are at record levels. With this and decrease of available jobs, it will greatly affect the businesses and their revenue.
4. There is no recovery base
It is crucial for a recovery to have consumer demand and consumer spending. In the recovery seen in the chart we didn't have a supporting base because it wasn't backed by consumers, which is highly concerning. Without a legitimate consumer spending and demand increase no recovery can really be sustainable.
5. Earnings misses
Many estimates have US corporate profits dropping 50-90%. If we continue in this pace upwards, the stock market will regain all of its losses and return to their pre-crisis prices by the end of the year. The fact that the company that has lost 50-90% of its revenue is worth the same price at the end of the year as it was before it lost it is just unreasonable.
In the chart above we can see how the crashes in 2001 and 2008 were even bigger than the one this year, even though the situation in the economy is way worse then it was in those years and the SPY was worth much less (more than 50% drops on both crashes in 900+ and 600+ days, whereas the recent crash happened in less than 2 months.)
I am also very cautious about investing in the current state of the market, because one of the biggest investors in the world, Warren Buffet, who is always very optimistic, has $135 Billion sitting in cash. The best investor in the world got out of many of his stocks and didn't re-enter yet, sold most of his Delta Airlines, which fell from their sixties to under $20 a share. That could mean he knows something we don't.
However, no one can predict what will the market do tomorrow, and who knows, maybe the rally continues. That's why I swing trade mostly and watch it carefully, so when (if it does) the crash comes, I can leave my positions or buy put options. In addition, I believe there is no question that the big companies in the US will be more valuable then they are now in 20 years, so if you are looking for a long term investment like that it is not a bad thing to invest.
In the future I would like to see if I can make similar analysis on the cryptocurrencies. Another idea is to post my weekly successful and failed trades, and see how I made money or what could have i done better and why did I did the trades that I did.
All in all, I believe that in the shorter term it is very risky to enter into the stock market if we look at the situation in the world.
I hope you make the right decision and good luck,
Marko
Two "stonks" pictures are from dr.stonks or 