COVID-19 has not only changed the ways we live and work almost overnight, but such has been its impact on economies that analysts have been struggling to keep pace with it. The market is in doldrums, and investors are bewildered by the unprecedented plunge in the market. The crisis is accelerating, and investors are at wit’s end about protecting their investments, which seems a daunting task feels the experts at Arlington Capital Management but not unsurmountable.
It is impossible to understand the market behavior which has been unstable and erratic, and investors would do good to analyze the probable scenarios that may unfold so that they stay prepared to create investment strategies should things turn out as envisaged.
Arlington Capital Management paints a picture of the bull phase
It may seem like wishful thinking that the market will gather steam and enter a bull phase based on the assumption that China roars back, and the US stays resilient, but you cannot rule it out entirely despite remote chances of it turning true. Well, it might sound too much optimistic at this stage, something like utopia because the ground reality is on the contrary. There has been a significant impact on growth due to the drastic lockdown measures, and despite the stimulus, the best that we can hope is gradual recovery.
Buy your time by staying a float
Markets and growth will stay ugly for some time. The contagion is still on the growth path despite slowing down a little, and it makes take some more time before cases peak, which will be vital in determining the severity of impact on growth. Until the virus comes under control, which is related to new cases, the market will remain volatile. The effect on growth will be felt across the US and Europe until June. Since the first two months of the year were relatively solid, the first quarter has gone through well, but the second quarter will be dreadful. On the contrary, China and other Asian countries could improve in the second quarter, albeit at a slower pace due to the current situation in the US and Europe. There is optimism around the enormous fiscal stimulus injected by most countries, but the recovery time is unknown.
Worst case scenario
While being hopeful of staying afloat during this period with a lot of support from central banks and governments, it is hard to ignore a gloomy scenario that can unfold amid the protracted global recession. Equity and credit markets are already factoring recession, although no one is sure about how long it will remain. Amid mild adjustments in earning expectations, there is the possibility of more downside in the coming months. As investors draw down credit lines and liquidate holdings, more global funding tension is likely to emerge.
The longer the containment measures stay, the risk of a global recession is bigger and sharper. Industries and businesses that have come to a sudden halt will struggle to manage cash to administer payrolls.
In the end, if you can weather the volatility, you can expect good things to happen in the post-COVID-19 times.pen in the post-COVID-19 times.