Coronavirus and Markets - impact on stock indices
Stock exchanges are experiencing one of the worst periods in history. NASDAQ fell more than 30% since the last peak, the SP 500 fell by 35%, the British FTSE 37% and the DAX lost even 42%. Amazing is not only the depth of the plunge, but also its speed, because these losses occurred essentially in 4 weeks. The growth, which had been lasting for years, was erased within one month. What the SP 500 added since President Trump was elected, has been recently wiped out and it is currently traded on the levels at the beginning of his term.
Such declines indicate that markets are officially in a bearish trend, which is considered when the prices drop 20% or more from the last peak. The markets are also reacting sharply because there was very long bullish trend and prices were high mainly due to the policy of low interest rates and long-term quantitative easing.
The economic data, however, had showed that cooling is coming. PMI indices in Germany indicated a contraction of the economy since January 2019, when they consistently fluctuated below level 50. New unemployment data should confirm a significant jobless data increase across the global economy.
As a result of current emergency measures to prevent the spread of coronavirus, the shares of banks, travel agencies and airlines suffer in particular. The problem for European banks is that they have not fully recovered from the 2009 crisis. Although they are better capitalized, they still have a high volume of bad credits in their balance sheets, which is likely to increase now. In any case, the actions of central banks give hope that the banking sector will survive. One of these steps is the unlimited QE announced by the Fed on March 23, 2020.
The development of US indeces will be very important for the upcoming US presidential election. President Trump will do his best to ensure that his first term can be considered as successful. That is why we can expect further massive stimulus packages, which will sooner or later support the shares in growth. The US Senate has already approved $ 2 trillion in economic support.
Technical analysis as at March 25, 2020
Shortly to explain the bear market, it has 4 phases:
It is impossible to correctly determine the bottom of the bear market.
- The markets are at high prices. Towards the end of this phase, investors leave the market and take in profits.
- Steep decline phase. This phase has already happened.
- Consolidation phase. Speculators enter the market and gradually increase prices and trading volume.
- Slow down phase. Good news and low prices are starting to attract investors, so the decline is slowing down and the bear market is starting to turn to bull market.
The moving averages we use in the technical analysis are EMA 50 - orange line, SMA 100 - blue line and SMA 200 - green line.