Article by online broker site Alpho
Most experts agree that kickstarting the global economy after the current lockdown due to coronavirus pandemic will be crucial for future progress. There are more factors, including a deep unemployment, which can cause problems and affect the global economy and markets.
How are stock markets managing right now? In the middle of April, American stocks appeared in highest values since March 2020. A symbol of the growth had been some good news on potential Covid-19 drug being developed by Gilead Sciences, an American biopharmaceutical company. A recently leaked WHO study on Gilead’s Covid-19 drug inefficiency, however signals that markets haven’t won yet. Right after the news spread, shares of the American biopharmaceutical company plunged, and so did all global stock market indexes as well as European indexes.
Some countries have begun to ease lockdown measures and reopened their economies, what suggests that a stock-market bottom had been reached. Yet, according to Alpho broker, it could also mean the so-called “lull before the storm”. Why? Let’s have a look at it in more details.
Due to the pandemic, expenses per individuals grow – the employment rate drops and impact of lockdown on economy of each state is inevitable.
In the latest report published on 6th April 2020, the International Monetary Fund lowered its global growth estimate for 2020 to 3%, and such a scenario would be worse than financial crisis of 2008 and 2009. Moreover, it could trigger further sale on stock markets.
While developed economies are expected to slump in 6,1%, developing markets and economies should drop in 1%.
In addition, a wave of stock market growth after slump in March, could have been just a temporary movement in bearish mood. Mark Jolley, strategist from CCB International Securities, told CNBC that shares value could drop in 15% below last minimum. For example, main stock indexes are currently traded on a higher forward P/E, while profits of companies decline. The forward P/E formula means a ratio between the current price and estimated earnings per share in upcoming 12 months.
That could be a serious reason for nervousness of investors, whose decisions during negative sentiment usually lead to sales.