Aspirations Insights : When will shares recover?

Typically falling share markets or bear markets have four stages:

Stage one is recognition.

Almost everybody shrugs off a bear market’s initial slide as being an ordinary event. The current market achieved stage one during its second week. Shares were up slightly for the year, before suddenly dropping 11% in the last week of February 2020. The stock market surged the following Monday, failed to hold its gains, and then collapsed in week three. Thus the bear market was triggered.

Stage two is panic.

Investors’ faith is tested and some are found wanting. They sell first, then ask questions later. We are currently in stage two. Along with 1987’s  share market crash, the current share market crash has been the fastest since The Great Depression in 1929.

Stage three is stabilisation.

Shares halt their decline, thereby ending the impression that they will do nothing but fall. The panic subsides but the situation remains grim. Investors believed during the first stage that share prices slide on a whim. Now they realise that shares stumbled for good reason (lower economic growth), and that until that reason is eliminated, they will continue to struggle. This period is marked by turbulence. Shares rally, sometimes furiously, only to be knocked back down. Investor sentiment varies between guarded optimism, that the end is at least remotely in sight, and despair that the hope was false. This is typically the bear market’s longest period, extending for several months.

Stage four is anticipation.

This is when shares start their recovery. As with the bear market’s beginning, almost nobody recognises its end until after the fact. The news at the time tends to be almost unrelievedly grim. However, some investors perceive economic improvement distantly in the future. They make their bids, and shares begin to rise. A classic case occurred in March 2009. The recession was in its terrifying midst, real US gross domestic product declined that quarter, and the next quarter, and the quarter after that. However that was the start of a wonderful bull market run.

Aspirations Wealth view:

Fairly soon, we believe will enter the third stage, that of stabilization. That doesn’t mean shares won’t decline further, but the struggle will at least be bounded. Within months, not years, the stock market recovery should begin. On the other hand, should uncertainties remain high and unresolved, perhaps because the virus’s behaviour confounds the scientists, or because the financial stimulus efforts prove ineffective, then all bets are off.

For now, quality assets will remain our friend!! 


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