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Stock market crash 2020: what is going to happen next?

By Connor Freitas

The stock market crash of 2020 has wiped out trillions of dollars in value and caused investors to panic. Here’s what caused it, and what’s around the corner

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It’s official: the stock market crash of 2020 has killed off the bull market. Trillions of dollars in value have evaporated in recent weeks – a stark contrast to mid-February, when there were wild hopes the would surpass 30,000 points for the first time. Over in Europe, major indices ended the week down 19 per cent on 17 March, with traders licking their wounds following the worst sell-off since the financial crisis in 2008.

All of this comes as the world panics over the coronavirus. Supermarket shelves have been ransacked, offices are ordering staff to work remotely, and countries are beginning to impose wide-ranging travel restrictions to protect their populations. Hospitals are at breaking point, and in hard-hit nations such as Italy, people are being warned they can only leave their homes to buy food or go to work.

Although the pandemic has certainly played a factor in the stock market crash, the reality is slightly more complicated than this. Here, we’ll explore The Nightmare On Wall Street in further detail – and try to figure out whether the worst is yet to come.

Why the stock market crashed

The coronavirus pandemic isn’t the only reason why the stock market crashed, but it’s a good place to start. It’s very hard to overstate the impact that this health scare is having on businesses and consumer confidence. Fear and uncertainty over how extensive the outbreak will be, including how many people will fall sick and lose their lives, is weighing heavily on traders. The fact the Dow Jones has been going up and down like a yo-yo (up 9.4 per cent on 14 March, but down 13 per cent on 16 March), shows the astounding levels of volatility that the market is facing.

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Governments and central banks around the world have been under pressure to introduce special measures designed to shield their economies from the threat of a recession induced by the coronavirus. Unfortunately, this is easier said than done. The US Federal Reserve had attempted to calm Wall Street by cutting interest rates to zero – but this sent the market into further freefall. Some fear the Fed simply doesn’t have enough ammunition to launch a stimulus package, especially now.

Major companies are having to take drastic action in light of the stock market crash, too. When coronavirus cases were rising dramatically in China, the epicentre of the outbreak, closed all of its stores in the country. Although these outlets are now open again, the battle isn’t over. Now, the tech giant has announced it is closing all of its branches outside Greater China for two weeks – including in the UK and the US. This will undoubtedly have a devastating impact on its financial performance.

Film studios are delaying the release of long-awaited blockbusters or cancelling filming. And then there’s . The entertainment giant’s amusement parks in Asia have already turned into ghost towns because of the pandemic – and now, Disney’s flagship parks in Paris, California and Florida have been forced to close too. These are just two small examples that perfectly illustrate why share prices have taken a nosedive.

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However, this narrative may be just too simple. Because of the wall-to-wall coverage on the coronavirus, you probably haven’t noticed a worsening oil price war that has been brewing between Russia and Saudi Arabia. After Moscow refused to offer support for an OPEC proposal that would reduce levels of production, Riyadh took action by vowing to flood the market with supply. On Monday 16 March, tumbled below $30 a barrel – its lowest price in over four years.

Stock market crash 2020 predictions

Will the stock market crash in 2020 continue? Unfortunately, there’s nothing to suggest that volatility is going to leave the market anytime soon. Many major countries, including the UK, are only at the early stages of the coronavirus outbreak. Official figures that show the economic impact of COVID-19 in the current quarter aren’t going to be released for some time – and there are fears that cases may calm down in the summer only to return with a vengeance in the colder winter months.

One dire stock market crash prediction came from JPMorgan, which warned that economies in Europe and the US will likely enter a recession by July. The bank has said that its attitudes towards the pandemic have shifted substantially over the past couple of weeks – adding that “we must resign ourselves to the inevitability of a large and broad-based shock”.

Not everyone agrees with this prognosis. Abby Joseph Cohen, a senior investment strategist at Goldman Sachs, told Barron’s that she does not believe the coronavirus will trigger a financial crisis. She believes that Europe and the US is unlikely to see mortality rates as high as China because patients will receive urgent medical care faster. She believes that the peak of new cases may not be reached for another four to six weeks, meaning investor confidence could begin to return in April, with economic data starting to improve in the third and fourth quarters.

Stock market crash: where to invest

Let’s take a look at the latest winners and losers on the stock market. Airlines are among those who are having a particularly hard time of it, with no end in sight. Some executives have publicly declared that the coronavirus crisis will have a bigger impact than 9/11, and others have warned they cannot guarantee the survival of the companies they work for. Since 2020 began, airlines listed in the US have seen almost 40 per cent wiped off their value – more than twice the average declines suffered across the rest of the . For investors who are eyeing up making a purchase of airline stocks, the phrase “catching a falling knife” springs to mind. There may be further pain ahead for this embattled sector.

Misery for the airlines is having a knock-on effect on connected industries too, such as tourism, leisure and entertainment. Hotel bookings are taking a hit because people are unwilling to go on holiday and businesses are stopping their employees from travelling. Restaurants are starting to be affected from coronavirus restrictions, and cruise companies are cancelling voyages over fears these ships may serve as incubators for the virus. Lower levels of footfall in public places don’t bode well for shopping malls and certain property companies, either.

Surprisingly, there have been winners from the stock market crash. Whenever there have been sell-offs in the S&P 500, only a few companies have managed to buck the trend. Dollar stores and wholesalers have tended to do well as people try to shop conservatively – stocking up on items in case they need to enter self-isolation and cutting their budgets in case they suffer an economic impact as a result of the coronavirus. Manufacturers focused on hand sanitiser, soap, bleach and toilet roll have also managed to enjoy gains even while other firms were in decline.

Crypto crash

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There had been hopes that the crypto markets would offer respite as stock markets took a bath, but unfortunately, this doesn’t seem to have been the case. At one point in the week from March 9 to 15, ’s value fell by more than 50 per cent in a two-day period – and suffered the biggest single-day drop since 2013.

Bitcoin’s status as “digital gold” has been tested because of the coronavirus. Buyers have been reluctant to purchase crypto because of volatility in the wider market, and there are fears that BTC could be in line for another decline as the coronavirus crisis continues. One analyst, Peter Brandt, has theorised that the world’s biggest cryptocurrency could slump as low as $1,000 – a price point that hasn’t been seen since February 2017.

FURTHER READING: Dow Jones analysis for March 16 to 20: the index will remain volatile and a drop below 20,000 is likely

FURTHER READING: Which investments are the best during a recession?

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