JPMorgan Spots A Stock Market Bottom

JPMorgan Spots A Stock Market Bottom

almost 4 years ago2 mins

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As coronavirus fatalities in Europe and the US show signs of letting up, analysts at investment bank JPMorgan think they can see an end to stock markets’ steep decline – and maybe even another ascent in the distance 🌄

What does this mean?

JPMorgan looked at the relationship between newly reported coronavirus cases and stock market volatility and found that when the former rose, the latter generally did too. In other words, they’re correlated 👫 So it stands to reason that if reports of new coronavirus cases slow, volatility – as measured by the “Volatility Index”, which, while still higher than it’s been in the last five years, has fallen from its recent near-record peak – will continue to fall. And that, the bank argues, could set the stage for stock prices to start drifting back up.

Source: Bloomberg
Source: Bloomberg

JPMorgan’s theory is about to be put to the test: American coronavirus fatalities fell for the first time on Sunday, while new data this week showed fewer new reported cases in Spain and Germany.

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Why should I care?

Investors bought up stocks around the world on Monday, though not necessarily thanks to JPMorgan. They had probably been waiting for the first sign of stabilization after several analysts pointed out that the quicker the virus is contained, the quicker the stock market will recover 🦠 Besides, JPMorgan’s analysts aren’t actually that optimistic: they reckon the key US stock market index, the S&P 500, could at best rise by 8% this quarter – and at worst fall another 20%.

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Investors comfortable with high-risk bets might instead try to identify individual companies that could benefit from the current situation and any eventual recovery. A safer route for long-term investors is to buy into the stock market as a whole – via an exchange-traded fund, maybe – and benefit from diversification. Even if stock prices fall in the near term, after all, they tend to rise over time 📈

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