Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
An estimated $138 billion has been wiped off the Australian markets this week as we enter our third day of steep decline. This market sell-off is attributed to increased Global fears over the Coronavirus and it’s economic impacts in months to come. This collapse was coming: with record-breaking growth even in stocks that had no fundamental reason to increase. We were operating in a bullish market, which was able to successfully sustain itself for over the past decade. Fundamentally, the market cannot sustain growth forever, and downturns in the market are healthy in attributing to a balanced economy (Business Cycle). The big question is will the market recover quickly (V shaped) or slowly (U shaped). If the market continues to sustain negative growth in the next two weeks, it could be a clear sign that we are headed towards a bearish market that will take some time to recover (U shaped recovery). Some experts believe that tonights US performance will “make or break” the long term outlook on the Australian markets.
“The real determining factor is can we get up tomorrow (tonight’s session, Australian time) and not have further outbreaks in Italy?” Tim Anderson on ABC.
The biggest concern is that the virus may have already spread across Europe and the Middle East, creating serious concern on Global GDP. If the Virus does bring Tourism and Manufacturing to a halt, then we will see some serious market correction and countries heading into a recession or at least one-quarter of negative GDP.
It will be interesting to see how the US responds to a 2000 point drop tonight, as tonights performance may have the ability to seriously sway the Australian market either way. However, to call this a Bearish market, it would need the market securities to fall 20% or more due to extreme fear or volatility due to an event or pandemic. This will only occur if the market trends downwards in the coming weeks and sends the Australian market into a huge correction. Only time will tell whether we are entering a Bearish market, the first time in over 10 years.
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