Economists are already saying that the coronavirus pandemic will drive the world economy to levels not seen since the Great Depression. In our article, How Far Could Stocks Fall, we noted that the 1929 stock market crash (which ushered in the Great Depression) was not limited to October of 1929. The market continued to fall until late 1932 by which time the Dow Jones Industrial Average had lost 90% of its previous value. Anyone who has cash in hand will have many opportunities to buy excellent stocks at bargain prices when the market bottoms out. But, when will that be? When should you buy stocks again?
When Should You Buy Stocks Again?
Market Watch quotes Mark Mobius who says that the market has not seen an absolute bottom yet.
“I don’t think we’re at the absolute bottom yet because the implications of this shutdown are incredible.”
Emerging-markets investing pioneer Mark Mobius made those remarks Tuesday in an interview with CNBC, putting him in the investing camp that expects an inevitable cascade of brutal economic data and corporate earnings hasn’t been fully discounted by investors.
“Although there are some opportunities to buy, I would say it’s probably a good idea to keep some powder dry for another downturn,” he said. “We might see a double bottom.”
Comparisons to 2007, 2008, and 2009 versus Today
The S&P 500 was still near its peak in September of 2007 at 1525 and did not hit bottom until April of 2009 at 868. That was a 19 month slide of which the worse drop was in the fall 2008. By comparison the S&P 500 peaked at 3386 on February 19 of this year and fell to 2237 by March 23 before recovering to 2839 by April 14.
Our concern is that the coronavirus pandemic and its economic impact are just unfolding. Earnings are just coming in and they are awful. The extent of the damage is unclear but likely to be severe to the US and world economies. It is not clear how much government assistance will help in the long run and how badly consumer confidence will be shaken. The U.S.A. never really got out of the Great Depression until it started production to fight World War II.
Investors will need to keep these things in mind when deciding when to buy stocks again. If you had jumped in and bought two months after the start of the 2007 market meltdown you would have experienced most of the losses after you made your investments.
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The good news is always that if you pick a solid stock with excellent long term potential, you will in all likelihood see it recover and provide you with fantastic profits for years to come. The better news is that if you are patient and buy close to the market bottom your profits will be substantially better.